The Future of Digital Currencies----

Opportunity or threat?

Dr. Robin Teigland Stockholm School of Economicswww.knowledgenetworking.orgwww.slideshare.net/eteigland

@RobinTeiglandwww.hhs.se October 2014

Today’s presentation

Brief history A vocabulary list of currenciesCryptocurrencies, e.g., BitcoinBenefits and drawbacksRecent eventsMoving forward

Do we even need money?

Incan Empire−Across today’s Peru,

Colombia, Chile, Bolivia, Ecuador, Argentina

−20 mln people

No tradersNo

shops/marketplaces

No need for money−Reciprocity/shared

labor−Self-sufficiency

What is money?

Not just a medium of exchange−Rational view−But why is holding a piece of paper or metal

rational?

A social construction−System of social relations based on power

relations and social norms −Inter-temporal promise

Store of abstract value linking past, present, and future

−Trust that our claim on future goods will be met

A vocabulary list of currencies

Fiat currency−National currency

Alternative/complementary currency−Bonus points/vouchers, e.g., frequent flyer

miles−Digital currency

In-game currencies, e.g., Stardollars, Farmville cash Virtual world currencies, e.g., Linden dollars, PEDs Mobile currency, e.g., M-pesa Cryptocurrency, e.g., Bitcoin

Real cash economy in Entropia Universe

http://blogs.forbes.com/oliverchiang/2010/11/13/meet-the-man-who-just-made-a-cool-half-million-from-the-sale-of-virtual-property/

• GDP >USD 440 mln• PEDs <--> USD, Euro

• Record virtual good: USD 625,000

We are “stuck” in our old mindset …Money=Fiat Currency

Fiat CurrencyDerives value from

government

Fiat money as country’s main currency

Today > 6000 complementary currencies

Many community-based currencies

In cooperation with national currencies

Benefits−Counterbalance banks−Create means of

exchange−Promote resilience of local

community

http://www.lietaer.com/writings/books/rethinking-money-by-bernard-lietaer-and-jacqui-dunne/

WIR in Switzerland - Complementary

Founded 1934 by cooperative of businessmen

IOU system based on personal trust

Secondary mortgages enable additional credit

>60,000 member firms >CHF 4 bln assets (SEK 29

bln)

Countercyclical impact

Top down fiat currency

Bottom up mutual credit

http://p2pfoundation.net/WIR_Economic_Circle_Cooperative

From Africa to Eastern Europe to ?

The future?

Facebook + banking license?

Bitcoin = The power of community + open source + internet + CPU

• Developed by self-organizing community of thousands of “strangers” across globe

• Not one but many motivations (intrinsic, extrinsic)• Approx USD 5.2 bln in circulation (October 2014) and

70,000 daily transactions• 91 bln SEK in circulation vs SEK 38 bln of Bitcoin in

five years

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263707

What is a cryptocurrency?

DigitalDecentralized, peer-to-peer (P2P), i.e., no

central, third party

Uses cryptography to validate transactionsAlso uses cryptography to generate

currency itself

How does Bitcoin work?

Screenclip from: How Bitcoin Works under the hood, by “Curious Inventor”

Block chain • Shared public

ledger • All transactions

ever made included

• Chronology and integrity enforced by cryptography

Mycelium Bitcoin Wallet

http://techcrunch.com/2014/09/04/kncminer-raises-14-million-to-take-bitcoin-mining-to-the-moon/

Benefits of Bitcoin

Improved transaction securityTrust in cryptography rather than

institution(s)Transparency Lower transaction costsCross-border, faster transactionsNo outside intervention No inflation (although market volatility)

Bitcoin – one of many cryptocurrencies

Currency CodeYearEst.

Founder(s)

Active Website PoW PoS

Bitcoin BTC or XBT 2009

Satoshi Nakamoto (pseudonym)

Yes N/A Yes No

Ripple XRP 2013

Chris Larsen & Jed McCaleb

Yes ripple.com  No No

Litecoin LTC 2011 Charles Lee Yes litecoin.org  Yes No

Peercoin PPC 2012Sunny King (pseudonym)

Yespeercoin.net 

Yes Yes

Dogecoin DOGE 2013

Jackson Palmer& Billy Markus

Yesdogecoin.com 

Yes No

Namecoin NMC 2011 N/A Yes dot-bit.org  Yes No

Mastercoin MSC 2013 J. R. Willett  Yesmastercoin.org 

No No

Primecoin XPM 2013Sunny King (pseudonym)

Yesprimecoin.org 

Yes No

Drawbacks of Bitcoin

Taxation concernsSecurity issuesConsumer uncertaintyMarket volatility (commodity or

currency?)Potential for illicit useHigh electricity consumption to “mine”…

Can we put our “trust” in a network?

Social networks follow basic principles −Self-organizing−Self-policing

−But the “rich get richer”−“Birds of a feather flock together”−Likelihood of groupthink

Will there be a tipping point?

http://coinmap.org/

Depends on….- Switching costs- Network effects

Bitcoin accepted here

http://mercatus.org/sites/default/files/Luther_CryptocurrenciesNetworkEffects_v1.pdf

Future scenarios?

Issuing equity in cryptocurrency

http://techcrunch.com/2014/09/30/reddit-scoops-up-50m-series-b-from-sam-altman-a16z-sequoia-at-500m-valuation

Bitcoin – so much more than a “coin”

From dumb to smart moneyUnderlying Bitcoin protocol holds

real transformative powerTransfer property rights (e.g.,

shares, certificates, digital money) fast, transparent and very securely.

http://thenextweb.com/insider/2014/02/15/bitcoin-platform-currency/

”Bitcoin has made me interested in issues like finance and money – things that I never thought about before. Now I am really curious and questioning why things are the way they are in the finance

world….and wondering what can I do to change them.”

- Bitcoin 2014 Conference Attendee

Institutions

Emergent Collective vs

E.g., Complementary~ Emergent community developing own bottom up complementary financial instruments

Teigland, Yetis, Larsson 2013

E.g., Central Bank~ Long-standing financial

institutions and regulations

Thomas Jefferson (1816)“Laws and institutions must go hand in hand with the progress of the human

mind.”

The problem is that the human mind itself can’t keep pace with the advances

that computers are enabling. 

http://wadhwa.com/2014/04/15/mit-technology-review-laws-and-ethics-cant-keep-pace-with-technology/

The genie is out of the bottle….

Robin Teiglandrobin.teigland@hhs.se

www.knowledgenetworking.org

www.slideshare.net/eteigland

www.nordicworlds.net @RobinTeigland

If you love knowledge, set it

free…

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