Peter Bofinger — The Mechanics of Cryptocurrency

More than forty years ago, Nobel laureate Friedrich von Hayek published a small book in which he called for the “denationalization of money.” For him, high inflation rates in all countries were proof that states were abusing their monopoly on issuing banknotes, and that only private money in competition could guarantee stable money. Hayek was more concerned with the regulatory principle of competition than with the question of how a competitive monetary system could be concretely shaped.

The success of Bitcoin and other cryptocurrencies today shows that there is indeed a market for such a private issue of money. It is however more than questionable whether a system with private currencies can actually replace the state-organized monetary systems and whether in the end a stable monetary system will emerge....

Denationalization of money would be the end of national sovereignty and thus the end of the modern national state and the Westphalian world order, replaced by a global market society. Whether this would be utopian or dystopian depends on one's assumptions and value system.

INET
The Mechanics of Cryptocurrency
Peter Bofinger | INET Global Commissioner

ht/ Yves Smith at Naked Capitalism

See also

NATIONAL CONFERENCE OF STATE LEGISLATURES BLOG | NCSL BLOG
CRYPTOCURRENCY: CURRENCY OF THE FUTURE OR JUST A FAD?
Heather Morton, program principal in Fiscal Affairs, covering financial services issues for NCSL

Bill Black — Bitcoin Frauds Keep Growing

One of the prime myths that white-collar criminologists have to refute repeatedly is that blockchain makes fraud impossible. Blockchain, in some settings, is a costly means of making some frauds much more difficult. Blockchain is useless against the most important frauds. The primitive worship of blockchain as a supposed garlic capable of warding off evil breeds complacency, and complacency produces increased fraud and greatly extends the life of fraud.…

Sheriff Bill is on the case.

New Economic Perspectives

Bitcoin Frauds Keep Growing

William K. Black | Associate Professor of Economics and Law, UMKC

Penny Crosman — Crypto lending may be risky, but these firms say they've solved the riddle

As a new crypto lender, Nexo, launches Monday, the fintechs that lend money to people based on the digital currency they own say they’re doing well even when cryptocurrency values plummet.

Longish but interesting article that looks at three crypto lenders.

American Banker
Crypto lending may be risky, but these firms say they've solved the riddle

Penny Crosman

Jonah Ho — TheBitcoin Fallacy-Back to the Gold Standard

MMT.

Makes Mogul
TheBitcoin Fallacy-Back to the Gold Standard
Jonah Ho

Ousmène Jacques Mandeng and Piroska Nagy-Mohacsi — Cryptocurrencies challenge the status quo

Cryptocurrencies have been the subject of recent attacks by official sector representatives, and the G20 finance ministers will consider regulatory proposals at their next meeting in Buenos Aires. This column argues that while cryptocurrencies present certain risks, they also represent an important innovation that promises to enhance choice and efficiency in monetary transactions. A proportionate, risk-based regulatory approach is required to accommodate differential attitudes and experiences and to avoid stifling innovation and competition. This implies having an open debate before sweeping regulatory action....

Vox.eu — CEPR's Policy Portal
Cryptocurrencies challenge the status quo

Ousmène Jacques Mandeng, Visiting Fellow, LSE Institute of Global Affairs, and Piroska Nagy-Mohacsi, Programme Director, Institute For Global Affairs, London School of Economics

Also

Washington tax authorities are treating crypto-currencies as properties and not money and this means US investors are starting to receive some unexpected and large tax demands.

"Prosecution futures." (ht Yves Smith)

Money laundering. Tick. Ponzi frauds and market manipulation. Tick. Terrorist financing and drug dealing. Tick. Tax evasion? Yes, that too can now get a tick on the checklist of supposed crypto crimes.

Asia Times
US crypto traders liable to capital gain taxes says IRS

Timothy B. Lee — Bitcoin has a huge scaling problem—Lightning could be the solution

Three startups are getting ready to launch one of the most ambitious and important cryptocurrency experiments since the creation of bitcoin itself. Called Lightning, the project aims to build a fast, scalable, and cryptographically secure payment network layered on top of the existing bitcoin network.

Essentially, Lightning aims to solve the big problem that has loomed over bitcoin in recent years: Satoshi Nakamoto's design for bitcoin is comically unscalable. It requires every full node in bitcoin's peer-to-peer network to receive and store a copy of every transaction ever made on the network.

Initially, that design was vital to achieving Nakamoto's vision of a fully decentralized payment network. But as Purdue computer scientist Pedro Moreno-Sanchez told Ars, it creates a big challenge as the network becomes more popular. "We have reached a point where it's not suitable any more to keep growing," he said.…

A big hurdle in innovation is scalability. It's also fundamental to evolutionary theory. A lot of potentially good solutions fail because they are not scalable or as scalable as other solutions.

As an aside, neoliberal globalization is running into a scalability problem that its advocates are determined to overcome by force if necessary. That is increasingly the case as resistance rises from traditionalism

Ars Technica 

Bitcoin has a huge scaling problem—Lightning could be the solution
Timothy B. Lee

Clint Ballinger — When Bitcoin goes to Zero, Don’t Blame Regulation

After bitcoin goes to (essentially) zero (since it is global, even a few oddballs can prop up its value for years at some low level, like hobbyists do for all kinds of things), which it will, some will say that it was regulation that killed it, not, as I explain, because crypto is worthless because it is not part of a balance sheet and as such has no inherent value to extinguish debt.

To be clear: That bitcoin can’t withstand being treated as any other ordinary good yet does not deserve special tax-free treatment is part of the theory though. You don’t get to declare “I’m a currency! I deserve special treatment!” and not pay taxes. Governments maintain the value of their currency through taxation (taxes drive currency). Money is a public good we all support for our mutual benefit.

You can’t just invent some new token (even if something new and shiny like blockchain & crypto) and declare it a special good that can be traded tax free. Yet taxing a self-declared “currency” guarantees its failure as it will not make sense for individuals to move into it if they are going to be taxed in real money for transactions in it.

Clint Ballinger

When Bitcoin goes to Zero, Don’t Blame Regulation

See also

New Economic Perspectives
The Fair Price of a Bitcoin is Zero

Eric Tymoigne | Associate Professor of Economics at Lewis and Clark College, Portland, Oregon; and Research Associate at the Levy Economics Institute of Bard College

Crossposted at Business Insider

Also

Futurism
The Real Price of Bitcoin? According to Morgan Stanley, It’s Zero

Aylin Woodward

Also

Ian Welsh
Do NOT Use Bitcoin Assuming It Is Anonymous

Also

Uneasy Money
Noah Smith on Bitcoins: A Failure with a Golden Future
David Glasner | Economist at the Federal Trade Commission

Does cryptocurrency remind you Beanie Babies?

Lewis Hayward — Top Russian Finance Official (Sergey Gorkov) Gives Huge Endorsement to Cryptos

A major endorsement from a very influential bureaucrat.

Russia Insider
Top Russian Finance Official (Sergey Gorkov) Gives Huge Endorsement to Cryptos

Lewis Hayward

Alex Christoforou — De-dollarization and the rise of Bitcoin. Is there a connection between the two?

Is Bitcoin a Reaction to US Dollar Hegemony?

Like Mike has been saying for some time.

The Duran
De-dollarization and the rise of Bitcoin. Is there a connection between the two?
Alex Christoforou

Related

Blockchain technology and the birth of the so-called cryptocurrencies finds deep roots in three contributing factors: the advance of technology: the manipulation of global economic and financial rules; and the persistent attempt to weaken the national economies of countries that geopolitically challenge the US power system. In this first article I address these issues from a financial point of view, in the next analysis I intend to dive into the geopolitical aspects and broader the perspective on how Russia, China and other nations are taking advantage of a decentralized financial system.

Strategic Culture Foundation
Is Bitcoin a Reaction to US Dollar Hegemony?Federico Pieraccini

See also

The iron fist of the US.

As the launch of new ‘petro’ cryptocurrency draws near, a US government agency declared that this newcomer to the digital financial market may represent a violation of sanctions imposed against Venezuela, its issuer.

Sputnik International
US Treasury Warns About Sanction Risks of Owning New Venezuelan Cryptocurrency

Clint Ballinger — Of Bitcoins and Balance Sheets: The Real Lesson From Bitcoin

From an MMT perspective.

Clint Ballinger
Of Bitcoins and Balance Sheets: The Real Lesson From Bitcoin

Maduro introduces Venezuelan cryptocurrency

Venezuela's plans to issue a cryptocurrency are an early warning of an attack on the Western-dominated global financial system.…

The kicker.

To keep its dominant role in the global financial system, the West is essentially interested in holding back progress. That, perhaps more than anything else, gives non-Western powers, including rogue ones, a potential technological advantage born of strong incentive.…

Good luck with holding back progress.

Bloomberg View
Government-Run Digital Currencies Could Disrupt U.S. Dominance
Leonid Bershidsky, columnist

Se also

Fort Russ
Russia, Venezuela launch Cryptocurrency counter-attack on Globalist Bankers
Joaquin Flores

also

The Duran

EL PETRO: Venezuela rocks cryptocurrency world by announce oil backed crypto
Adam Garrie 

Dan Goodin — Websites use your CPU to mine cryptocurrency even when you close your browser

A new wrinkle in free riding.

Ars Technica
Websites use your CPU to mine cryptocurrency even when you close your browser
Dan Goodin | Security Editor

Dan Goodin — A surge of sites and apps are exhausting your CPU to mine cryptocurrency

Coinhive harnesses the resources of 500 million people with no questions asked.

Ars Technica
A surge of sites and apps are exhausting your CPU to mine cryptocurrency

Dan Goodin | Security Editor at Ars Technica

Ryan Browne — Kazakhstan plans to launch its own cryptocurrency

• Kazakhstan's government-supported Astana International Finance Center (AIFC) said Tuesday it had signed a deal of cooperation with Maltese firm Exante
• Exante said it would work with the AIFC to develop the ex-Soviet nation's untapped cryptocurrency market
• Kazakhstan's entry into the digital currency ecosystem would be underpinned by Exante's new blockchain platform, 'Stasis'

When it rains it pours.

In August, Estonia proposed its own state-backed digital asset, which would be called "estcoin". The small Eastern European nation said it was considering the launch of estcoin through an initial coin offering (ICO) — a crowdfunding method that has garnered much scrutiny in recent weeks.

And last month, Japan signaled the potential launch of its own digital currency, called J-Coin....

CNBC
Kazakhstan plans to launch its own cryptocurrency
Ryan Browne

Tom Luongo — Russia’s Crypto-Ruble Just Changed the Game

Well-reasoned analysis from an cryptocurrency advocate's point of view:  A win for cryptocurrency and a win for Putin that will be a win for Russia.

Gold Goats n Guns
Russia’s Crypto-Ruble Just Changed the Game

Tom Luongo

also

The Duran
Crypto-Rouble: Russia to launch first state sanctioned cryptocurrency in the world
Adam Garrie

Sputnik — Vladimir Putin Endorses Russia's New Cryptocurrency

Rumors confirmed.

After months of speculation and conflicting messages, ministers have announced the Russian Federation is to issue its own official cryptocurrency - the CryptoRuble. The landmark development makes Russia the very first government in the world to official pursue virtual tender.

China likely not to be far behind.

Interesting article. Short and worth a read in full.

Sputnik International
Vladimir Putin Endorses Russia's New Cryptocurrency

Neil Wilson — Crypto-Shilling

Everything you wanted to know about cryptocurrencies from an MMT perspective.

Modern Money Matters
Crypto-Shilling
Neil Wilson

See also

Bitcoin transactions use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to a paper from Dutch bank ING.

Bitcoin trades use a lot of electricity as a means to make verifying trades expensive, therefore making fraudulent transactions costly and deterring those who would seek to misuse the currency.…

Also this week, a team of analysts led by Gautam Chhugani and Gaurav Jangale from the research house Bernstein said that bitcoin was still just a "censorship-resistant asset class," out of the reach of state control and yet to form a part of the system of settlement and credit that defines money.

"Fiat money is still the final form of settlement — governments still collect taxes in fiat money and salaries are still paid in fiat money," the team said in a note to clients on Wednesday.

Business Insider
The electricity required for a single bitcoin trade could power a house for a whole month

Will Martin

Also

It's time for the world's central banks and regulators to get serious about digital currencies, according to the head of the International Monetary Fund.

Global financial institutions are taking risks by not watching and understanding emerging financial tech products that are already starting to shake up the financial services and global payments system, according to IMF Managing Director Christine Lagarde....

CNBC
'We are about to see massive disruptions': IMF's Lagarde says it's time to get serious about digital currency

Elizabeth Schulze

President Vladimir Putin said on Tuesday crypto-currencies were risky and used for crime, as Russia’s central bank said it would block websites selling bitcoin and its rivals - a change of tone from a month-old promise to legalize the market....

Reuters
Russia turns cold on crypto-currencies
Denis Pinchuk, Elena Fabrichnaya

According to data from virtual currency software platform Blockchain.info, China accounts for about 70 per cent of the world’s bitcoin mining power – computer server farms that tap into cheap electricity to solve the complex mathematical problems that underpin bitcoin.

Garrick Hileman, a research fellow from the Cambridge Centre for Alternative Finance in Britain, said the authorities were careful not to kill off mining, the “goose that lays the golden egg”....

South China Morning Post
How one big bang sent China to the fringes of the bitcoin universe
Sidney Lang

Medium
Are you in the Bitcoin 1% ? A New Model of the Distribution of Bitcoin Wealth

SG Kinsmann

Frank Chapparo — Lloyd Blankfein says he's still studying bitcoin, people were also 'skeptical when paper money displaced gold'

Goldman has yet to speak.

The billionaire banker tweeted on Tuesday that he wasn't completely sure about his stance on the red-hot cryptocurrency.

Blankfein said he's "still thinking about bitcoin" and that he was not flat out endorsing or denouncing the digital currency....

Business Insider
Lloyd Blankfein says he's still studying bitcoin, people were also 'skeptical when paper money displaced gold'

Frank Chapparo

Christine Lagarde — Central Banking and Fintech—A Brave New World?

I would like to consider the possible impact of three innovations—virtual currencies, new models of financial intermediation, and artificial intelligence.

Some of these innovations have already found their way into our wallets, smartphones, and financial systems. But that is only the beginning.

Are you ready to jump on my pod and explore the future together? As one of your fellow Londoners—Mary Poppins—might have said: bring along a pinch of imagination!

1. Virtual currencies

Let us start with virtual currencies. To be clear, this is not about digital payments in existing currencies—through Paypal and other “e-money” providers such as Alipay in China, or M-Pesa in Kenya.

Virtual currencies are in a different category, because they provide their own unit of account and payment systems. These systems allow for peer-to-peer transactions without central clearinghouses, without central banks.

For now, virtual currencies such as Bitcoin pose little or no challenge to the existing order of fiat currencies and central banks. Why? Because they are too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable. Many are too opaque for regulators; and some have been hacked.

But many of these are technological challenges that could be addressed over time. Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays. So I think it may not be wise to dismiss virtual currencies.Better value for money?

For instance, think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country—such as the U.S. dollar—some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0.

IMF experience shows that there is a tipping point beyond which coordination around a new currency is exponential. In the Seychelles, for example, dollarization jumped from 20 percent in 2006 to 60 percent in 2008.

And yet, why might citizens hold virtual currencies rather than physical dollars, euros, or sterling? Because it may one day be easier and safer than obtaining paper bills, especially in remote regions. And because virtual currencies could actually become more stable.

For instance, they could be issued one-for-one for dollars, or a stable basket of currencies. Issuance could be fully transparent, governed by a credible, pre-defined rule, an algorithm that can be monitored…or even a “smart rule” that might reflect changing macroeconomic circumstances.

So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.

Better payment services?

For example, consider the growing demand for new payment services in countries where the shared, decentralized service economy is taking off.This is an economy rooted in peer-to-peer transactions, in frequent, small-value payments, often across borders.

Four dollars for gardening tips from a lady in New Zealand, three euros for an expert translation of a Japanese poem, and 80 pence for a virtual rendering of historic Fleet Street: these payments can be made with credit cards and other forms of e-money. But the charges are relatively high for small-value transactions, especially across borders.

Instead, citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash—no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities. If privately issued virtual currencies remain risky and unstable, citizens may even call on central banks to provide digital forms of legal tender....

IMF

Central Banking and Fintech—A Brave New World?
Christine Lagarde, IMF Managing Director
Bank of England conference, London | September 29, 2017

Zero Hedge — PBOC Researcher: China Should Start Its Own Sovereign Digital Currency "As Soon As Possible"

Much more than the title suggests. Government is assserting its currrency sovereignty.

Zero Hedge

PBOC Researcher: China Should Start Its Own Sovereign Digital Currency "As Soon As Possible"

Tyler Durden