From Cryptocurrency

BIS: Cryptocurrencies and the economics of money

Achieving trust in money through the consensus of self-interested bookkeepers imposes too many constraints and cuts too many corners for it to replace the monetary system. The technology is only a small part of the issue of the viability of cryptocurrencies. The underlying incentives and the economics are key. Even leaving aside the many important issues to do with illicit activities and consumer protection, cryptocurrencies fall a long way short of being able to sustain a monetary system. . . . The decentralised technology of cryptocurrencies, however sophisticated, and useful for many other purposes, is a poor substitute for the solid institutional backing of money through independent and accountable central banks. (Hyun Song Shin, BIS, June 2018)

BIS: Beyond the doomsday economics of “proof-of-work” in cryptocurrencies

In the digital age too, good money is likely to remain a social construct rather than a purely technological one: the efficiency of decentralised exchange via proof-of-work exclusively is much lower than would appear at first sight, and alternative technologies still need to demonstrate that they can function without institutional backing. But claiming that technology alone cannot do the trick is not to say that it is useless. It simply means that the focus could shift away from the issue of whether the technology can replace traditional sovereign money and financial institutions. (Raphael Auer, BIS, January 2019)

BIS: Central bank cryptocurrencies

Whether or not a central bank should provide a digital alternative to cash is most pressing in countries, such as Sweden, where cash usage is rapidly declining. But all central banks may eventually have to decide whether issuing retail or wholesale CBCCs makes sense in their own context. In making this decision, central banks will have to consider not only consumer preferences for privacy and possible efficiency gains – in terms of payments, clearing and settlement – but also the risks it may entail for the financial system and the wider economy, as well as any implications for monetary policy (Bordo and Levin, 2017). Some of the risks are currently hard to assess. (Morten Linnemann Bech and Rodney Garratt, BIS, September 2017)

WB: Bitcoin Versus Electronic Money

One way to comprehend virtual currency is to first understand fiat currency. Fiat currency is any legal tender designated and issued by a central authority that people are willing to accept in exchange for goods and services because it is backed by regulation and because they trust this central authority. Fiat money is similar to commodity-backed money in appearance and usage, but differs in that it cannot be redeemed for a commodity, such as gold. (Sarah Rotman Parker, WB/CGAP, January 2014, cit. the European Central Bank, 2012)

IMF: What Are Cryptocurrencies?

[Cryptocurrencies] rely on distributed ledger technology, such as blockchain, to construct a ledger (effectively a database) that is maintained across a network. To ensure that the same cryptocurrency is not spent twice, each member of the network verifies and validates transactions using technologies derived from computing and cryptography. Once a decentralized consensus is achieved among members of the network, the transaction is added to the ledger, which is validated. The ledger provides a complete history of the transactions associated with a particular cryptocurrency that is permanent and cannot be manipulated by a single entity. This ability to achieve consensus on the validity of transactions between accounts in a distributed network is a foundational technological shift. (Antoine Bouveret and Vikram Haksar, IMF, March 2018)