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REQUIRED: Referring to
the attached question and the full research article attached, critically
analyze the full article. You are
expected to support answer with sound academic research. Students are advised to
underpin their answers with the use of references (cited using the Harvard
Name System of Referencing). Instructions:You are required to identify six opinion of the
author relating to cryptocurrencies from the article attached. And then for
each opinion you have to find three other opinions relating to the same point
from three different sources (Articles). Then you have to discuss all the
opinions and put your recommendations. Assignment structure
and marks:·Introduction:
10%·Discussion:60%·Recommendation:
20%·Conclusion: 10%The discussion should
be as follow:·Paragraph 1: The
main article author opinion relating to cryptocurrencies. ·Paragraph 2: The
first opinion, source or article.·Paragraph 3: The
second opinion, source or article.·Paragraph 4: The
third opinion, source or article. ·Paragraph 5: Your
discussion about the point. You may also include the recommendation here if you
don’t want to do a separate paragraph for recommendations at the end.You should do the same
organization for the other five points that you will choose. You don’t have to
use the same articles for each point, you can bring as many articles as you
want and do not use books.Introduction and conclusion
should at least one full page. Every paragraph should
have a citation.
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ASSIGNMENT QUESTIONS
Cryptocurrencies: Are Disruptive Financial Innovations Here?
“Digital currencies, virtual currencies, in-game currencies, etc., have gathered a lot of attention,
despite the difficulties of definition, from all corners of society for many years. Cryptocurrency
has gained unprecedented attention since the birth of Bitcoin in 2009. Bitcoin is an online system
of making and receiving payments in bitcoins. The system distinguishes itself by providing an
open source, cryptographically secure, confidentiality preserving platform for transactions and/or
making payments. The number of transactions as well as the number of accounts (held by
individuals and businesses) is steadily increasing. A whole industry of service-providers has
sprung up alongside. We consider the development of Bitcoin and its sister currencies as an
important disruptive financial innovation which is here to stay unless throttled by ill-considered
legislative or regulatory actions. Potential problems are analyzed and solutions offered. The
overall assessment is that cryptocurrencies and variants of virtual currencies are a welcome
development, they will offer competition to the existing modalities of money and governmental
regulation, they will provide alternative means to economic agents for their transactions, and
their innovative existence should be encouraged so that their beneficial features outperform any
deleterious ones.” (Prof. Gautam Vora – University of New Mexico)
REQUIRED:
Referring to the above abstract and the full research article attached, critically analyze the full
article.
You are expected to support answer with sound academic research.
Instructions:
You are required to identify six opinion of the author relating to cryptocurrencies from the article
attached. And then for each opinion you have to find three other opinions relating to the same
point from three different sources (Articles). Then you have to discuss all the opinions and put
your recommendations.
Assignment structure and marks:




Introduction: 10%
Discussion: 60%
Recommendation: 20%
Conclusion: 10%
The discussion should be as follow:





Paragraph 1: The main article author opinion relating to cryptocurrencies.
Paragraph 2: The first opinion, source or article.
Paragraph 3: The second opinion, source or article.
Paragraph 4: The third opinion, source or article.
Paragraph 5: Your discussion about the point. You may also include the recommendation
here if you don’t want to do a separate paragraph for recommendations at the end.
You should do the same organization for the other five points that you will choose. You don’t
have to use the same articles for each point, you can bring as many articles as you want and do
not use books.
Introduction and conclusion should at least one full page.
Every paragraph should have a citation.
Modern Economy, 2015, 6, 816-832
Published Online July 2015 in SciRes. http://www.scirp.org/journal/me
http://dx.doi.org/10.4236/me.2015.67077
Cryptocurrencies: Are Disruptive Financial
Innovations Here?
Gautam Vora
Department of FIT Management, Anderson School of Management, University of New Mexico, Albuquerque,
USA
Email: [email protected]
Received 21 May 2015; accepted 17 July 2015; published 20 July 2015
Copyright © 2015 by author and Scientific Research Publishing Inc.
This work is licensed under the Creative Commons Attribution International License (CC BY).
http://creativecommons.org/licenses/by/4.0/
Abstract
Digital currencies, virtual currencies, in-game currencies, etc., have gathered a lot of attention,
despite the difficulties of definition, from all corners of society for many years. Cryptocurrency has
gained unprecedented attention since the birth of Bitcoin in 2009. Bitcoin is an online system of
making and receiving payments in bitcoins. The system distinguishes itself by providing an opensource, cryptographically secure, confidentiality-preserving platform for transactions and/or
making payments. The number of transactions as well as the number of accounts (held by individuals and businesses) is steadily increasing. A whole industry of service-providers has sprung
up alongside. We consider the development of Bitcoin and its sister currencies as an important
disruptive financial innovation which is here to stay unless throttled by ill-considered legislative
or regulatory actions. Potential problems are analyzed and solutions offered. The overall assessment is that cryptocurrencies and variants of virtual currencies are a welcome development, they
will offer competition to the existing modalities of money and governmental regulation, they will
provide alternative means to economic agents for their transactions, and their innovative existence should be encouraged so that their beneficial features outperform any deleterious ones.
Keywords
Bitcoin, Cryptocurrency, Digital Currency, Virtual Currency, Cryptography, Finance, Economics,
Regulation, Disruptive Innovation
1. Introduction
Money is a matter of functions four: a medium, a measure, a standard, a store. Traditionally, “money” is any object that is accepted in payment for goods and services as well as for repayment of debt. Historically speaking, the
How to cite this paper: Vora, G. (2015) Cryptocurrencies: Are Disruptive Financial Innovations Here? Modern Economy, 6,
816-832. http://dx.doi.org/10.4236/me.2015.67077
G. Vora
object has been tangible but as economies developed intangibles (such as written records) became increasingly acceptable. The concept of money has evolved1 such that it is defined in terms of its functions: “Money is what
money does” ([8], ([9], p. 474) [10] ([11], p.1)). The functions of money are typically categorized as follows: I.
Primary (1) Medium of exchange, 2) Measure of value), II. Secondary (1) Standard of deferred payment, 2) Store
of value, 3) Transfer of value), III. Contingent (1) Basis of credit, 2) Mobility and productivity of capital, 3) Distribution of economy’s output, 4) Optimality condition of equalizing marginal utilities and marginal productivities),
IV. Motives (1) Transactional, 2) Precautionary, 3) Speculative). In recent economics, the functions of measurement and standard are often combined into the “unit of account” or numeraire. The aforementioned little pithy
statement says it all: Money has four (or three if two are combined) important and direct functions2. Some of the
attributes, not necessarily the functions, of money are portability, ease of portability, durability, forgery-proof (inimitability or difficulty to counterfeit), divisibility, liquidity, stability of inflation, stability of credit, stability of asset prices, trust in its governance, confidence in its prevalence, acceptance and value, etc.
What does the word “cryptocurrency” designate? Is it “hidden and secret” currency? If citizens, a central bank,
agencies of governments and supragovernmental agencies know about it, is it hidden and secret? Is it electronic
currency? Then, are electronic funds transfers (EFTs) and wire transfers not electronic currency? Is it digital
currency? Then, are credit- and debit-card transactions not digital currency? The phrase “virtual currency”,
however, has been defined by numerous agencies3. Among these various phrases, the phrase digital currency
appears to be most general and encompassing the rest4, even though the agencies of the US government seem to
prefer the phrase “virtual currency” 5. Recognize that a cryptocurrency is one type of digital currency and because it exists in the parallel world of computer network, it is also a virtual currency6.
In this paper we review the antecedents of digital currencies, both ancient and recent, and provide an economic/financial overview (instead of dwelling on technological aspects). The regulatory aspects are touched
upon in the section on implications. The majority of discussion is in reference to bitcoin7, the preëminent cryptocurrency (an exciting version of digital and/or virtual currency) which has spawned fawning attention, copycats, regulatory frowning and governmental constraints. An immense literature, scholarly and otherwise, exists
on the technical aspects of cryptocurrencies. Excellent sources such as Antonopoulos [13], Franco [14], and
Swanson [15] exist. Understandably, however, financial or economic perspective is not their focus. Literature on
cashless/checkless society has been available for a long time. Financial perspective on cryptocurrencies is not
1
An interesting historical account of money is provided by numerous popular books, e.g., [1]-[3]. The financial aspects of money can be
found in any good introductory or intermediate economics textbook. An unconventional and more true-to-life historical account of money is
provided by [4]. Dalton ([5], p. 185) cites archaeological, social anthropological and historical evidence to explode the myth of barter to
conclude that “Barter, in the strict sense of moneyless market exchange, has never been a quantitatively important or dominant model of
transaction in any past or present economic system about which we have hard information.” Humphrey ([6], p. 48) puts the matter bluntly,
“No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.” Graeber ([7], p. 28) puts the matter more bluntly, “[T]here’s no evidence that [barter
ever happened, and enormous amount of evidence suggesting that it did not.”
2
Dalton [10] provides an interesting transaction to illustrate many of these functions as the result of a single purchase: “I buy a house for
$20,000 paying $5000 down and borrowing $15,000 from a bank to be repaid in future installments: 1) I acquire rights to a house; the former owner acquires $20,000. The money is used as a medium of (commercial) exchange. 2) Dollars here are used also as a measure or standard of (commercial) value, i.e., as a measuring device to compare the house with any other commodity priced in dollars. 3) The bank uses
dollars as a unit of (commercial) account in recording my indebtedness to it. 4) My debt to the bank also means that dollars are used as a
standard for deferred (commercial) payments, i.e., as a device to measure commercial debt. 5) If I save money currently in anticipation of
repaying debt, dollars are used as a store of (commercial) value or wealth. 6) When I begin to repay the bank, dollars are then used as a
means of (commercial) payment of indebtedness incurred by the past market purchase.” The idea that money is not only for transactions and
also for a system of repayment is presented clearly. The system of repayment can be best understood as a system of credit and clearing.
3
The European Union defines it as “a type of unregulated, digital money, which is issued and usually controlled by its developers, and used
and accepted among the members of a specific virtual community”. Financial Crimes Enforcement Network (FinCEN), a bureau of the US
Treasury Department, defines it as “a medium of exchange that operates like a currency in some environments, but does not have all the
attributes of real currency”. In particular, virtual currency does not have legal tender status in any jurisdiction. The European Banking Authority define it as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a
fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically.”
4
Digital currency “is an internet based medium of exchange that exhibits properties similar to physical currencies. … Both virtual currencies
and cryptocurrencies are types of digital currencies, but the converse is incorrect.” (http://en.wikipedia.org/wiki/Digital_currency)
5
As if the definitional problems are not sufficient, the tax authority of the US calls bitcoin and other digital currencies “property” and not
currency at all! (http://www.reuters.com/article/2014/03/25/us-bitcoin-irs-idUSBREA2O1LR20140325)
6
Likewise, the Internet is indeed called the virtual world.
7
Bergstra and Weijland ([12]) do not like any of the popular designations; they instead prefer to call it “money-like informational commodity”.
817
G. Vora
readily available8.
This paper is organized as follows. Section 2 reviews the roots of the “virtual” currency. Section 3 discusses
Bitcoin, an ecosystem, which is the focus of the paper. Section 4 discusses the financial and economic aspects of
Bitcoin. Section 5 discusses potential and perceived problems and offers an argumentative analysis and solutions.
Section 6 concludes the paper.
2. The Roots of Digital/Virtual/Crypto Currency
Many forms of money exist. From the tangible forms of money (e.g., commodity to precious metal to base metal
to paper) to traditional intangible forms of money (e.g., traveler’s checks to demand deposits to other checkable
deposits) to modern intangible forms of money (savings deposits to other time deposits to deposits in money
market funds of banks/thrifts and mutual funds). Aforementioned forms have the imprimatur of the state or the
sovereign, thereby making it economy-wide money. For example, in the US, for January 2015, the currency
stock (coins and Federal Reserve notes) is only $1266.3 billion; when other items are added, money stock
measure M1 becomes $2927.9 billion. For the same period, money stock measure M2 is $11706.5 billion
(http://www.federalreserve.gov/releases/h6/current/#t2tg1link). Thus, the coin and currency is 43.25 percent of
M1 and only 10.82 percent of M2. Moreover, most of the money is not “real money”; it is in book-entry form
(when we had physical account books) or in entries in a digital database (when accounts are kept on a computer).
Thus, this digital money is as “virtual” as it gets. We have many other forms of money whose reach may not be
economy-wide: 1) company money: commercial paper, stamps, coupons, points and rewards such as frequent
flyer miles; 2) craft money: community currencies9 (http://www.communitycurrency.org/home); 3) play money:
board games (e.g., Monopoly) and computer or online games (e.g., Gods, Gemstone III, Lineage, systems such
as Second Life). Some of the online games allow creation of money or other rewards and a player can exchange
the real money for play money10. When the games allow creation of money or spawn a currency to meet the demands of players, this currency is digital. Because an online game world is a virtual world, one can call the associated currency a “virtual currency” 11.
The roots of digital currency for the real economy can be found as far back as 1967 when the Rand Corporation published Harrison’s ([18] [19]) two-volume bibliography of articles and reports on the subject of protecting individual privacy and providing data security in computerized record-keeping systems. This was followed
by Hunt and Turn’s [20] annotated bibliography for the years 1970-1973 on the same subject. The Harrison bibliography was part of the testimony before The Senate Subcommittee on Administrative Practice and Procedure
on the subject of privacy aspects of the cashless and checkless society [21]. Armer emphasized the point made
by Oettinger ([22], p. 38] that “Automation affects not the mere mechanics of banking, but the very foundations
of banking; not the individual bank, but banking systems and the national and international economies in which
they are embedded.” During these times the trends in financial systems were causing economic agents, regulators, and governments some alarm. Lee [23] captures the alarming trend of “checkless, cashless society” quite well
in his article. The progress in computing and telecommunications, however, did not take banking system very
far. Humes [24] actually discounts the progress made. Nevertheless, Roland [25] lauds the progress made in the
industry. Even if we were to ignore Roland’s bold forecasts on the future progress and convergence of numerous
technological developments to result in digital watch, computer-aided instruction, impact on employment, smart
machines, home-banking, driverless planes and cars, his prescience must be appreciated for he states,
The movement toward [electronic funds transfer] EFT has met a great deal of resistance from the public,
which fears that EFT would increase the risk of costly mistakes or theft, reduce privacy, encourage greater
government intervention and control or be vulnerable to disaster or sabotage. Progress toward EFT has
been hindered by the lack of low-cost, widely available transaction terminals, the high cost of reliable data
communications lines, the lack of secure methods of identifying transacting parties, and the lack of adequate back-up systems.
8
A recent paper [16] attempts to provide an economic and financial perspective. Three authors, however, are from computing/engineering
disciplines and the paper is heavier in that direction. A recent book [17] attempts the same. The book’s focus is on all sorts of digital/virtual
currencies, including the online in-game currencies (play money) and on interaction between the virtual and real economies. Consequently,
the focus limits the discussion of economic and financial issues.
9
Articles in International Journal of Community Currency Research (http://ijccr.net/about/) are fascinating.
10
Note that some of organizations hold tournaments for these games and offer real prize money.
11
The definitional problem of digital currency versus virtual currency versus alternative currency vs complementary currency will never vanish. The development of cryptocurrency has added to the lexicological maelstrom.
818
G. Vora
For many purposes, a cashless, checkless society would be highly desirable. Most crimes of gain depend on
the use of cash, and organized crime as we know it would probably become impossible if cash were eliminated. If all financial transactions could be monitored by the government, it might be able to intervene more
effectively to control inflation and avoid recession. Tax collection could be made automatic and much less
painful, both in impact and in the burden of bookkeeping imposed. Sound economic planning by business,
government, and individuals might become possible in a way that it now is not. It could permit a more efficient allocation of resources and more accurate investment strategies.
Microcomputer technology and the advent of the [computer] will make the cashless, checkless society
feasible and may answer the legitimate objections to EFT.… Trapdoor12 codes will provide secure communications and positive identification between transacting parties and banks. Low-cost non-volatile memory
systems will make possible permanent, non-alterable records of all transactions.
Microelectronic technology makes trapdoor coding economically feasible for use in all kinds of communications and transactions, and trapdoor coding can make all kinds communications and transactions secure
against eavesdropping and tampering.
Fast-forward to October 1995 when Alan Blinder, Vice Chairman of the Board of Governors of the Federal Reserve System, testified before the US. House Subcommittee on Domestic and International Monetary Policy [26]:
First, the concept of [digital cash or] electronic money is not new. Electronic transfer of bank balances, for
example, has been with us for years. Indeed, some of the new proposals simply make available to consumers and smaller businesses capabilities that large corporations and banks have had for many years.
Second, no one knows how the industry will evolve, either in form or in size. Some of us, for example, can
still remember predictions made a generation ago that the United States was on the verg …
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