From Cryptocurrency

BIS: Money and trust: lessons from the 1620s for money in the digital age

The source of the success of public deposit banks was their role in instilling common knowledge in monetary transactions by establishing a platform for standardised settlement of transactions, both for goods and for financial instruments. Common knowledge refers to not only the fact that everyone knows, but also that this knowledge is transparent to all concerned. . . . The importance of common knowledge is especially relevant in monetary economics in the age of distributed ledger technology (DLT) and Bitcoin, as one interpretation of money is as a score-keeping device on the history of past transactions. The analysis of money as a score-keeping device was given emphasis by the paper by Kocherlakota (1998), whose title is “Money is memory.” (Isabel Schnabel and Hyun Song Shin, BIS, February 2018)

IMF: Crypto Currencies and Monetary Policy

Cryptocurrencies today do not do a good job at fulfilling the main functions of money. They may be favored by some for ideological, technological, or monetary policy reasons. The blockchain technology they use does have some important advantages in controlling for fraud and maintaining privacy. But they also open up avenues for tax evasion and criminal activity. (Jeffrey Banks, IMF, January 2019)

ADB: Bursting the Bitcoin Bubble: Assessing the Fundamental Value and Social Costs of Bitcoin

[T]he fundamental value of a bitcoin is equal to the miners’ equipment and electricity costs relative to their expected block reward and fees. While Bitcoin is a decentralized peer-to-peer network with no central authority, the mechanism for adjusting the level of difficulty encoded in its protocol amounts to inflexible system of supply management. Hence, demand shocks have an exaggerated effect on the price of the bitcoin and each adjustment in the level of difficulty of mining a bitcoin results in social welfare losses. (Andrea Podhorksy, ADB, March 2019)

BIS: Cryptocurrencies: looking beyond the hype

Cryptocurrencies such as Bitcoin promise to deliver not only a convenient payment means based on digital technology, but also a novel model of trust. Yet delivering on this promise hinges on a set of assumptions: that honest miners control the vast majority of computing power, that users verify the history of all transactions and that the supply of the currency is predetermined by a protocol. Understanding these assumptions is important, for they give rise to two basic questions regarding the usefulness of cryptocurrencies. First, does this cumbersome way of trying to achieve trust come at the expense of efficiency? Second, can trust truly and always be achieved? (Hyun Song Shin, BIS, June 2018)