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A cryptocurrency, crypto-currency, or crypto is a
digital currency Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital cu ...
designed to work as a medium of exchange through a
computer network A computer network is a set of computers sharing resources located on or provided by network nodes. The computers use common communication protocols over digital interconnections to communicate with each other. These interconnections are ...
that is not reliant on any central authority, such as a
government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government i ...
or
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
, to uphold or maintain it. It is a decentralized system for verifying that the parties to a transaction have the money they claim to have, eliminating the need for traditional intermediaries, such as banks, when funds are being transferred between two entities. Individual coin ownership records are stored in a digital
ledger A ledger is a book or collection of accounts in which account transactions are recorded. Each account has an opening or carry-forward balance, and would record each transaction as either a debit or credit in separate columns, and the ending or ...
, which is a computerized
database In computing, a database is an organized collection of data stored and accessed electronically. Small databases can be stored on a file system, while large databases are hosted on computer clusters or cloud storage. The design of databases ...
using
strong cryptography Strong cryptography or cryptographically strong are general terms applied to cryptographic systems or components that are considered highly resistant to cryptanalysis. Demonstrating the resistance of any cryptographic scheme to attack is a com ...
to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership. Despite their name, cryptocurrencies are not considered to be currencies in the traditional sense, and while varying treatments have been applied to them, including classification as commodities, securities, and currencies, cryptocurrencies are generally viewed as a distinct asset class in practice. Some crypto schemes use validators to maintain the cryptocurrency. In a proof-of-stake model, owners put up their tokens as collateral. In return, they get authority over the token in proportion to the amount they stake. Generally, these token stakers get additional ownership in the token over time via network fees, newly minted tokens, or other such reward mechanisms. Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to a
central bank digital currency A central bank digital currency (CBDC) (also called digital fiat currency or digital base money) is a digital currency issued by a central bank, rather than by a commercial bank. A report by the Bank for International Settlements states that, ...
(CBDC). When a cryptocurrency is minted, or created prior to issuance, or issued by a single issuer, it is generally considered centralized. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, ...
, that serves as a public financial transaction database. Traditional asset classes like currencies, commodities, and stocks, as well as macroeconomic factors, have modest exposures to cryptocurrency returns. The first decentralized cryptocurrency was Bitcoin, which was first released as open-source software in 2009. As of March 2022, there were more than 9,000 other cryptocurrencies in the marketplace, of which more than 70 had a market capitalization exceeding $1 billion.


History

In 1983, American cryptographer
David Chaum David Lee Chaum (born 1955) is an American computer scientist, cryptographer, and inventor. He is known as a pioneer in cryptography and privacy-preserving technologies, and widely recognized as the inventor of digital cash. His 1982 dissertati ...
conceived of a type of cryptographic
electronic money Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital cu ...
called
ecash Ecash was conceived by David Chaum as an anonymous cryptographic electronic money or electronic cash system in 1983. It was realized through his corporation Digicash and used as micropayment system at one US bank from 1995 to 1998. Design Chaum ...
. Later, in 1995, he implemented it through
Digicash DigiCash Inc. was an electronic money corporation founded by David Chaum in 1989. DigiCash transactions were unique in that they were anonymous due to a number of cryptographic protocols developed by its founder. DigiCash declared bankruptcy ...
, an early form of cryptographic electronic payments. Digicash required user software in order to withdraw notes from a bank and designate specific encrypted keys before it can be sent to a recipient. This allowed the digital currency to be untraceable by a third party. In 1996, the
National Security Agency The National Security Agency (NSA) is a national-level intelligence agency of the United States Department of Defense, under the authority of the Director of National Intelligence (DNI). The NSA is responsible for global monitoring, collecti ...
published a paper entitled ''How to Make a Mint: the Cryptography of Anonymous Electronic Cash'', describing a cryptocurrency system. The paper was first published in an MIT mailing list and later in 1997 in ''The American Law Review''. In the 1997 book '' The Sovereign Individual'', the authors,
William Rees-Mogg William Rees-Mogg, Baron Rees-Mogg (14 July 192829 December 2012) was a British newspaper journalist who was Editor of '' The Times'' from 1967 to 1981. In the late 1970s, he served as High Sheriff of Somerset, and in the 1980s was Chairman of t ...
and
James Dale Davidson James Dale Davidson is an American private investor and investment writer, co-writer of the newsletter ''Strategic Investment'', and co-author with William Rees-Mogg of ''Blood in the Streets: Investment Profits in a World Gone Mad'' (1987), ''The ...
, predict that the currency used in the
information age The Information Age (also known as the Computer Age, Digital Age, Silicon Age, or New Media Age) is a historical period that began in the mid-20th century. It is characterized by a rapid shift from traditional industries, as established during ...
would be using "mathematical algorithms that have no physical existence", which has led some in the cryptocurrency community to call the book's claim a "prophecy". In 1998,
Wei Dai Wei Dai ( zh, c=戴伟) is a computer engineer known for contributions to cryptography and cryptocurrencies. He developed the Crypto++ cryptographic library, created the b-money cryptocurrency system, and co-proposed the VMAC message authent ...
described "b-money", an anonymous, distributed electronic cash system. Shortly thereafter,
Nick Szabo Nicholas Szabo is a computer scientist, legal scholar, and cryptographer known for his research in digital contracts and digital currency. He graduated from the University of Washington in 1989 with a degree in computer science and received a J ...
described
bit gold The bit is the most basic unit of information in computing and digital communications. The name is a portmanteau of binary digit. The bit represents a logical state with one of two possible values. These values are most commonly represented ...
. Like
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
and other cryptocurrencies that would follow it, bit gold (not to be confused with the later gold-based exchange BitGold) was described as an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published. In January 2009, Bitcoin was created by
pseudonym A pseudonym (; ) or alias () is a fictitious name that a person or group assumes for a particular purpose, which differs from their original or true name ( orthonym). This also differs from a new name that entirely or legally replaces an individu ...
ous developer Satoshi Nakamoto. It used SHA-256, a cryptographic hash function, in its proof-of-work scheme. In April 2011, Namecoin was created as an attempt at forming a decentralized DNS. In October 2011,
Litecoin Litecoin (Abbreviation: LTC; sign: Ł) is a decentralized peer-to-peer cryptocurrency and open-source software project released under the MIT/X11 license. Inspired by Bitcoin, Litecoin was among the earliest altcoins, starting in October 201 ...
was released which used scrypt as its hash function instead of SHA-256. Peercoin, created in August 2012, used a hybrid of proof-of-work and proof-of-stake. On 6 August 2014, the UK announced its Treasury had commissioned a study of cryptocurrencies, and what role, if any, they could play in the UK economy. The study was also to report on whether regulation should be considered. Its final report was published in 2018, and it issued a consultation on cryptoassets and stablecoins in January 2021. In June 2021,
El Salvador El Salvador (; , meaning " The Saviour"), officially the Republic of El Salvador ( es, República de El Salvador), is a country in Central America. It is bordered on the northeast by Honduras, on the northwest by Guatemala, and on the south ...
became the first country to accept Bitcoin as legal tender, after the Legislative Assembly had voted 62–22 to pass a bill submitted by President Nayib Bukele classifying the cryptocurrency as such. In August 2021,
Cuba Cuba ( , ), officially the Republic of Cuba ( es, República de Cuba, links=no ), is an island country comprising the island of Cuba, as well as Isla de la Juventud and several minor archipelagos. Cuba is located where the northern Caribb ...
followed with Resolution 215 to recognize and regulate cryptocurrencies such as Bitcoin. In September 2021, the
government of China The Government of the People's Republic of China () is an authoritarian political system in the People's Republic of China under the exclusive political leadership of the Chinese Communist Party (CCP). It consists of legislative, executive, mil ...
, the single largest market for cryptocurrency, declared all cryptocurrency transactions illegal. This completed a crackdown on cryptocurrency that had previously banned the operation of intermediaries and miners within China. On 15 September 2022, the world second largest cryptocurrency at that time, Ethereum transitioned its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS) in an upgrade process known as "the Merge". According to the Ethereum Founder, the upgrade can cut Ethereum's energy use by 99.9% and carbon-dioxide emissions by 99.9%.


Formal definition

According to Jan Lansky, a cryptocurrency is a system that meets six conditions: # The system does not require a central authority; its state is maintained through distributed consensus. # The system keeps an overview of cryptocurrency units and their ownership. # The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units. # Ownership of cryptocurrency units can be proved exclusively cryptographically. # The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units. # If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them. In March 2018, the word ''cryptocurrency'' was added to the ''
Merriam-Webster Dictionary ''Webster's Dictionary'' is any of the English language dictionaries edited in the early 19th century by American lexicographer Noah Webster (1758–1843), as well as numerous related or unrelated dictionaries that have adopted the Webster's ...
''.


Altcoins

Tokens, cryptocurrencies, and other digital assets other than Bitcoin are collectively known as alternative cryptocurrencies, typically shortened to "altcoins" or "alt coins", or disparagingly "shitcoins". Paul Vigna of ''The Wall Street Journal'' also described altcoins as "alternative versions of Bitcoin" given its role as the model protocol for altcoin designers. Altcoins often have underlying differences when compared to Bitcoin. For example,
Litecoin Litecoin (Abbreviation: LTC; sign: Ł) is a decentralized peer-to-peer cryptocurrency and open-source software project released under the MIT/X11 license. Inspired by Bitcoin, Litecoin was among the earliest altcoins, starting in October 201 ...
aims to process a block every 2.5 minutes, rather than Bitcoin's 10 minutes, which allows Litecoin to confirm transactions faster than Bitcoin. Another example is Ethereum, which has smart contract functionality that allows decentralized applications to be run on its blockchain. Ethereum was the most used blockchain in 2020, according to Bloomberg News. In 2016, it had the largest "following" of any altcoin, according to the ''New York Times''. Significant rallies across altcoin markets are often referred to as an "altseason".


Stablecoins

Stablecoins are cryptocurrencies designed to maintain a stable level of purchasing power. Notably, these designs are not foolproof, as a number of stablecoins have crashed or lost their peg. For example, on 11 May 2022, Terra's stablecoin UST fell from $1 to 26 cents. The subsequent failure of
Terraform Labs Terra is a blockchain protocol and payment platform used for algorithmic stablecoins. The project was created in 2018 by Terraform Labs, a startup co-founded by Do Kwon and Daniel Shin. It is most known for its Terra stablecoin and the associat ...
resulted in the loss of nearly $40B invested in the Terra and Luna bitcoins. In September 2022, South Korean prosecutors requested the issuance of an
Interpol Red Notice An Interpol notice is an international alert circulated by Interpol to communicate information about crimes, criminals, and threats by police in a member state (or an authorised international entity) to their counterparts around the world. The in ...
against the company's founder, Do Kwon.


Architecture

Cryptocurrency is produced by an entire cryptocurrency system collectively, at a rate which is defined when the system is created and which is publicly stated. In centralized banking and economic systems such as the US
Federal Reserve System The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after ...
, corporate boards or governments control the supply of currency. In the case of cryptocurrency, companies or governments cannot produce new units, and have not so far provided backing for other firms, banks or corporate entities which hold asset value measured in it. The underlying technical system upon which cryptocurrencies are based was created by Satoshi Nakamoto. Within a proof-of-work system such as Bitcoin, the safety, integrity and balance of
ledger A ledger is a book or collection of accounts in which account transactions are recorded. Each account has an opening or carry-forward balance, and would record each transaction as either a debit or credit in separate columns, and the ending or ...
s is maintained by a community of mutually distrustful parties referred to as miners. Miners use their computers to help validate and timestamp transactions, adding them to the ledger in accordance with a particular timestamping scheme. In a proof-of-stake blockchain, transactions are validated by holders of the associated cryptocurrency, sometimes grouped together in stake pools. Most cryptocurrencies are designed to gradually decrease the production of that currency, placing a cap on the total amount of that currency that will ever be in circulation. Compared with ordinary currencies held by financial institutions or kept as
cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...
on hand, cryptocurrencies can be more difficult for
seizure An epileptic seizure, informally known as a seizure, is a period of symptoms due to abnormally excessive or synchronous neuronal activity in the brain. Outward effects vary from uncontrolled shaking movements involving much of the body with lo ...
by law enforcement.


Blockchain

The validity of each cryptocurrency's coins is provided by a
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, ...
. A blockchain is a continuously growing list of records, called ''blocks'', which are linked and secured using cryptography. Each block typically contains a
hash Hash, hashes, hash mark, or hashing may refer to: Substances * Hash (food), a coarse mixture of ingredients * Hash, a nickname for hashish, a cannabis product Hash mark *Hash mark (sports), a marking on hockey rinks and gridiron football fiel ...
pointer as a link to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data. It is "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way". For use as a distributed ledger, a blockchain is typically managed by a
peer-to-peer Peer-to-peer (P2P) computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the network. They are said to form a peer-to-peer ...
network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority. Blockchains are secure by design and are an example of a distributed computing system with high
Byzantine fault tolerance A Byzantine fault (also Byzantine generals problem, interactive consistency, source congruency, error avalanche, Byzantine agreement problem, and Byzantine failure) is a condition of a computer system, particularly distributed computing systems, ...
. Decentralized consensus has therefore been achieved with a blockchain.


Nodes

A ''node'' is a computer that connects to a cryptocurrency network. The node supports the cryptocurrency's network through either relaying transactions, validation, or hosting a copy of the blockchain. In terms of relaying transactions, each network computer (node) has a copy of the blockchain of the cryptocurrency it supports. When a transaction is made, the node creating the transaction broadcasts details of the transaction using encryption to other nodes throughout the node network so that the transaction (and every other transaction) is known. Node owners are either volunteers, those hosted by the organization or body responsible for developing the cryptocurrency blockchain network technology, or those who are enticed to host a node to receive rewards from hosting the node network.


Timestamping

Cryptocurrencies use various timestamping schemes to "prove" the validity of transactions added to the blockchain ledger without the need for a trusted third party. The first timestamping scheme invented was the proof-of-work scheme. The most widely used proof-of-work schemes are based on SHA-256 and scrypt. Some other hashing algorithms that are used for proof-of-work include CryptoNight, Blake, SHA-3, and X11. Another method is called the proof-of-stake scheme. Proof-of-stake is a method of securing a cryptocurrency network and achieving distributed consensus through requesting users to show ownership of a certain amount of currency. It is different from proof-of-work systems that run difficult hashing algorithms to validate electronic transactions. The scheme is largely dependent on the coin, and there's currently no standard form of it. Some cryptocurrencies use a combined proof-of-work and proof-of-stake scheme.


Mining

On a blockchain, ''mining'' is the validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network. The rate of generating hashes, which validate any transaction, has been increased by the use of specialized machines such as FPGAs and ASICs running complex hashing algorithms like SHA-256 and scrypt. This arms race for cheaper-yet-efficient machines has existed since Bitcoin was introduced in 2009. With more people venturing into the world of virtual currency, generating hashes for validation has become more complex over time, forcing miners to invest increasingly large sums of money to improve computing performance. Consequently, the reward for finding a hash has diminished and often does not justify the investment in equipment and cooling facilities (to mitigate the heat the equipment produces), and the electricity required to run them. Popular regions for mining include those with inexpensive electricity, a cold climate, and jurisdictions with clear and conducive regulations. By July 2019, Bitcoin's electricity consumption was estimated to be approximately 7 gigawatts, around 0.2% of the global total, or equivalent to the energy consumed nationally by Switzerland. Some miners pool resources, sharing their processing power over a network to split the reward equally, according to the amount of work they contributed to the probability of finding a block. A "share" is awarded to members of the mining pool who present a valid partial proof-of-work. , the Chinese Government has halted trading of virtual currency, banned initial coin offerings and shut down mining. Many Chinese miners have since relocated to Canada and Texas. One company is operating data centers for mining operations at Canadian oil and gas field sites, due to low gas prices. In June 2018, Hydro Quebec proposed to the provincial government to allocate 500 megawatts of power to crypto companies for mining. According to a February 2018 report from ''
Fortune Fortune may refer to: General * Fortuna or Fortune, the Roman goddess of luck * Luck * Wealth * Fortune, a prediction made in fortune-telling * Fortune, in a fortune cookie Arts and entertainment Film and television * ''The Fortune'' (1931 film) ...
'', Iceland has become a haven for cryptocurrency miners in part because of its cheap electricity. In March 2018, the city of
Plattsburgh, New York Plattsburgh ( moh, Tsi ietsénhtha) is a city in, and the seat of, Clinton County, New York, United States, situated on the north-western shore of Lake Champlain. The population was 19,841 at the 2020 census. The population of the surroundin ...
put an 18-month moratorium on all cryptocurrency mining in an effort to preserve natural resources and the "character and direction" of the city. In 2021,
Kazakhstan Kazakhstan, officially the Republic of Kazakhstan, is a transcontinental country located mainly in Central Asia and partly in Eastern Europe. It borders Russia to the north and west, China to the east, Kyrgyzstan to the southeast, Uzbeki ...
became the second-biggest crypto-currency mining country, producing 18.1% of the global hash rate. The country built a compound containing 50,000 computers near Ekibastuz.


GPU price rise

An increase in cryptocurrency mining increased the demand for graphics cards (GPU) in 2017. The computing power of GPUs makes them well-suited to generating hashes. Popular favorites of cryptocurrency miners such as Nvidia's
GTX 1060 The GeForce 10 series is a series of graphics processing units developed by Nvidia, initially based on the Pascal microarchitecture announced in March 2014. This design series succeeded the GeForce 900 series, and is succeeded by the GeForce 16 s ...
and GTX 1070 graphics cards, as well as AMD's RX 570 and RX 580 GPUs, doubled or tripled in priceor were out of stock. A GTX 1070 Ti which was released at a price of $450 sold for as much as $1,100. Another popular card, the GTX 1060 (6 GB model) was released at an MSRP of $250, and sold for almost $500. RX 570 and RX 580 cards from AMD were out of stock for almost a year. Miners regularly buy up the entire stock of new GPU's as soon as they are available.
Nvidia Nvidia CorporationOfficially written as NVIDIA and stylized in its logo as VIDIA with the lowercase "n" the same height as the uppercase "VIDIA"; formerly stylized as VIDIA with a large italicized lowercase "n" on products from the mid 1990s to ...
has asked retailers to do what they can when it comes to selling GPUs to gamers instead of miners. Boris Böhles, PR manager for Nvidia in the German region, said: "Gamers come first for Nvidia."


Wallets

A
cryptocurrency wallet A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often al ...
is a means of storing the public and private "keys" (address) or seed which can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the associated cryptocurrency. With the public key, it is possible for others to send currency to the wallet. There exist multiple methods of storing keys or seed in a wallet. These methods range from using paper wallets (which are public, private or seed keys written on paper), to using hardware wallets (which are hardware to store your wallet information), to a digital wallet (which is a computer with a software hosting your wallet information), to hosting your wallet using an exchange where cryptocurrency is traded, or by storing your wallet information on a digital medium such as plaintext.


Anonymity

Bitcoin is pseudonymous, rather than anonymous; the cryptocurrency in a wallet is not tied to a person, but rather to one or more specific keys (or "addresses"). Thereby, Bitcoin owners are not immediately identifiable, but all transactions are publicly available in the blockchain. Still, cryptocurrency exchanges are often required by law to collect the personal information of their users. Some cryptocurrencies, such as
Monero Monero (; Abbreviation: XMR) is a decentralized cryptocurrency. It uses a public distributed ledger with privacy-enhancing technologies that obfuscate transactions to achieve anonymity and fungibility. Observers cannot decipher addresses tra ...
,
Zerocoin Zerocoin is a privacy protocol proposed in 2013 by Johns Hopkins University professor Matthew D. Green and his graduate students, Ian Miers and Christina Garman. It was designed as an extension to the Bitcoin protocol that would improve Bitco ...
, Zerocash, and
CryptoNote CryptoNote is an application layer protocol designed for use with cryptocurrencies that aims to solve specific problems identified in Bitcoin. Namely: * Traceability of transactions * The proof-of-work function (see Bitcoin network) * Irregular ...
, implement additional measures to increase privacy, such as by using zero-knowledge proofs.


Economics

Cryptocurrencies are used primarily outside banking and governmental institutions and are exchanged over the Internet.


Block rewards

Proof-of-work cryptocurrencies, such as Bitcoin, offer block rewards incentives for miners. There has been an implicit belief that whether miners are paid by block rewards or transaction fees does not affect the security of the blockchain, but a study suggests that this may not be the case under certain circumstances. The rewards paid to miners increase the supply of the cryptocurrency. By making sure that verifying transactions is a costly business, the integrity of the network can be preserved as long as benevolent nodes control a majority of computing power. The verification algorithm requires a lot of processing power, and thus electricity in order to make verification costly enough to accurately validate public blockchain. Not only do miners have to factor in the costs associated with expensive equipment necessary to stand a chance of solving a hash problem, they further must consider the significant amount of electrical power in search of the solution. Generally, the block rewards outweigh electricity and equipment costs, but this may not always be the case. The current value, not the long-term value, of the cryptocurrency supports the reward scheme to incentivize miners to engage in costly mining activities. Some sources claim that the current Bitcoin design is very inefficient, generating a welfare loss of 1.4% relative to an efficient cash system. The main source for this inefficiency is the large mining cost, which is estimated to be US$360 Million per year. This translates into users being willing to accept a cash system with an inflation rate of 230% before being better off using Bitcoin as a means of payment. However, the efficiency of the Bitcoin system can be significantly improved by optimizing the rate of coin creation and minimizing transaction fees. Another potential improvement is to eliminate inefficient mining activities by changing the consensus protocol altogether.


Transaction fees

Transaction fees for cryptocurrency depend mainly on the supply of network capacity at the time, versus the demand from the currency holder for a faster transaction. The currency holder can choose a specific transaction fee, while network entities process transactions in order of highest offered fee to lowest. Cryptocurrency exchanges can simplify the process for currency holders by offering priority alternatives and thereby determine which fee will likely cause the transaction to be processed in the requested time. For
Ether In organic chemistry, ethers are a class of compounds that contain an ether group—an oxygen atom connected to two alkyl or aryl groups. They have the general formula , where R and R′ represent the alkyl or aryl groups. Ethers can again ...
, transaction fees differ by computational complexity, bandwidth use, and storage needs, while Bitcoin transaction fees differ by transaction size and whether the transaction uses
SegWit Segregated Witness, or SegWit, is the name used for an implemented soft fork change in the transaction format of Bitcoin. The formal title "Segregated Witness (Consensus layer)" had Bitcoin Improvement Proposal number BIP141. The declared purpo ...
. In September 2018, the median transaction fee for Ether corresponded to $0.017, while for Bitcoin it corresponded to $0.55. Some cryptocurrencies have no transaction fees, and instead rely on client-side proof-of-work as the transaction prioritization and anti-spam mechanism.


Exchanges

Cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
s allow customers to trade cryptocurrencies for other assets, such as conventional fiat money, or to trade between different digital currencies. Crypto marketplaces do not guarantee that an investor is completing a purchase or trade at the optimal price. As a result, many investors take advantage of this by using
arbitrage In economics and finance, arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more markets; striking a combination of matching deals to capitalise on the difference, the profit being the difference between t ...
to find the difference in price across several markets.


Atomic swaps

Atomic swaps are a mechanism where one cryptocurrency can be exchanged directly for another cryptocurrency, without the need for a trusted third party such as an exchange.


ATMs

Jordan Kelley, founder of Robocoin, launched the first Bitcoin ATM in the United States on 20 February 2014. The kiosk installed in Austin, Texas, is similar to bank ATMs but has scanners to read government-issued identification such as a driver's license or a passport to confirm users' identities.


Initial coin offerings

An initial coin offering (ICO) is a controversial means of raising funds for a new cryptocurrency venture. An ICO may be used by startups with the intention of avoiding regulation. However, securities regulators in many jurisdictions, including in the U.S., and Canada, have indicated that if a coin or token is an "investment contract" (e.g., under the Howey test, i.e., an investment of money with a reasonable expectation of profit based significantly on the entrepreneurial or managerial efforts of others), it is a security and is subject to securities regulation. In an ICO campaign, a percentage of the cryptocurrency (usually in the form of "tokens") is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, often Bitcoin or Ether. According to
PricewaterhouseCoopers PricewaterhouseCoopers is an international professional services brand of firms, operating as partnerships under the PwC brand. It is the second-largest professional services network in the world and is considered one of the Big Four accounti ...
, four of the 10 biggest proposed initial coin offerings have used
Switzerland ). Swiss law does not designate a ''capital'' as such, but the federal parliament and government are installed in Bern, while other federal institutions, such as the federal courts, are in other cities (Bellinzona, Lausanne, Luzern, Neuchâtel ...
as a base, where they are frequently registered as non-profit foundations. The Swiss regulatory agency
FINMA The Swiss Financial Market Supervisory Authority (FINMA) is the Swiss government body responsible for financial regulation. This includes the supervision of banks, insurance companies, stock exchanges and securities dealers, as well as other fi ...
stated that it would take a "balanced approach" to ICO projects and would allow "legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with national laws protecting investors and the integrity of the financial system." In response to numerous requests by industry representatives, a legislative ICO working group began to issue legal guidelines in 2018, which are intended to remove uncertainty from cryptocurrency offerings and to establish sustainable business practices.


Price trends

The market capitalization of a cryptocurrency is calculated by multiplying the price by the number of coins in circulation. The total cryptocurrency market cap has historically been dominated by Bitcoin accounting for at least 50% of the market cap value where altcoins have increased and decreased in market cap value in relation to Bitcoin. Bitcoin's value is largely determined by speculation among other technological limiting factors known as blockchain rewards coded into the architecture technology of Bitcoin itself. The cryptocurrency market cap follows a trend known as the "halving", which is when the block rewards received from Bitcoin are halved due to technological mandated limited factors instilled into Bitcoin which in turn limits the supply of Bitcoin. As the date reaches near of a halving (twice thus far historically) the cryptocurrency market cap increases, followed by a downtrend. By June 2021, cryptocurrency had begun to be offered by some wealth managers in the US for
401(k) In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodical employee contributions come directly out of the ...
s.


Volatility

Cryptocurrency prices are much more volatile than established financial assets such as stocks. For example, over one week in May 2022, Bitcoin lost 20% of its value and Ethereum lost 26%, while Solana and Cardano lost 41% and 35% respectively. The falls were attributed to warnings about inflation. By comparison, in the same week, the
Nasdaq The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...
tech stock index fell 7.6 per cent and the
FTSE 100 The Financial Times Stock Exchange 100 Index, also called the FTSE 100 Index, FTSE 100, FTSE, or, informally, the "Footsie" , is a share index of the 100 companies listed on the London Stock Exchange with (in principle) the highest marke ...
was 3.6 per cent down. In the longer term, of the 10 leading cryptocurrencies identified by the total value of coins in circulation in January 2018, only four (Bitcoin, Ethereum, Cardano and Ripple (XRP)) were still in that position in early 2022. The total value of all cryptocurrencies was $2 trillion at the end of 2021, but had halved nine months later. The Wall Street Journal has commented that the crypto sector has become “intertwined” with the rest of the capital markets and “sensitive to the same forces that drive tech stocks and other risk assets”, such as inflation forecasts.


Databases

There are also ''centralized'' databases, outside of blockchains, that store crypto market data. Compared to the blockchain, databases perform fast as there is no verification process. Four of the most popular cryptocurrency market databases are CoinMarketCap, CoinGecko, BraveNewCoin, and Cryptocompare.


Social and political aspects

According to Alan Feuer of ''
The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'',
libertarian Libertarianism (from french: libertaire, "libertarian"; from la, libertas, "freedom") is a political philosophy that upholds liberty as a core value. Libertarians seek to maximize autonomy and political freedom, and minimize the state's en ...
s and anarcho-capitalists were attracted to the philosophical idea behind Bitcoin. Early Bitcoin supporter Roger Ver said: "At first, almost everyone who got involved did so for philosophical reasons. We saw Bitcoin as a great idea, as a way to separate money from the state." Economist
Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was t ...
argues that cryptocurrencies like Bitcoin are "something of a cult" based in "paranoid fantasies" of government power. Nigel Dodd argues in ''The social life of Bitcoin'' that the essence of the Bitcoin ideology is to remove money from both social and governmental control. Dodd discusses the ''"Declaration of Bitcoin's Independence"'', a message of crypto-anarchism with the words: "Bitcoin is inherently anti-establishment, anti-system, and anti-state. Bitcoin undermines governments and disrupts institutions because Bitcoin is fundamentally humanitarian." David Golumbia says that the ideas influencing Bitcoin advocates emerge from right-wing extremist movements such as the Liberty Lobby and the
John Birch Society The John Birch Society (JBS) is an American right-wing political advocacy group. Founded in 1958, it is anti-communist, supports social conservatism, and is associated with ultraconservative, radical right, far-right, or libertarian ideas. T ...
and their anti-Central Bank rhetoric, or, more recently,
Ron Paul Ronald Ernest Paul (born August 20, 1935) is an American author, activist, physician and retired politician who served as the U.S. representative for Texas's 22nd congressional district from 1976 to 1977 and again from 1979 to 1985, as we ...
and Tea Party-style libertarianism. Steve Bannon, who owns a "good stake" in Bitcoin, sees cryptocurrency as a form of disruptive populism, taking control back from central authorities. Bitcoin's founder, Satoshi Nakamoto has supported the idea that cryptocurrencies go well with libertarianism: "It's very attractive to the libertarian viewpoint if we can explain it properly." Nakamoto said in 2008. According to the
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
, the decentralization of money offered by Bitcoin has its theoretical roots in the
Austrian school of economics The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian school ...
, especially with Friedrich von Hayek in his book ''Denationalisation of Money: The Argument Refined'', in which Hayek advocates a complete
free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
in the production, distribution and management of money to end the monopoly of central banks.


Increasing regulation

The rise in the popularity of cryptocurrencies and their adoption by financial institutions has led some governments to assess whether regulation is needed to protect users. The Financial Action Task Force (FATF) has defined cryptocurrency-related services as "virtual asset service providers" (VASPs) and recommended that they be regulated with the same
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...
( AML) and know your customer (KYC) requirements as financial institutions. In May 2020, the Joint Working Group on interVASP Messaging Standards published "IVMS 101", a universal common language for communication of required originator and beneficiary information between VASPs. The FATF and financial regulators were informed as the data model was developed. In June 2020, FATF updated its guidance to include the "Travel Rule" for cryptocurrencies, a measure which mandates that VASPs obtain, hold, and exchange information about the originators and beneficiaries of virtual asset transfers. Subsequent standardized protocol specifications recommended using JSON for relaying data between VASPs and identity services. As of December 2020, the IVMS 101 data model has yet to be finalized and ratified by the three global standard setting bodies that created it. The European Commission published a digital finance strategy in September 2020. This included a draft regulation on Markets in Crypto-Assets (MiCA), which aimed to provide a comprehensive regulatory framework for digital assets in the EU. On 10 June 2021, the
Basel Committee on Banking Supervision The Basel Committee on Banking Supervision (BCBS) is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten (G10) countries in 1974. The committee expanded its membership in 2009 a ...
proposed that banks that held cryptocurrency assets must set aside capital to cover all potential losses. For instance, if a bank were to hold Bitcoin worth $2 billion, it would be required to set aside enough capital to cover the entire $2 billion. This is a more extreme standard than banks are usually held to when it comes to other assets. However, this is a proposal and not a regulation. The IMF is seeking a co-ordinated, consistent and comprehensive approach to supervising cryptocurrencies.
Tobias Adrian Tobias Adrian (born 23 July 1971) is a German and American economist who has been Financial Counsellor of the International Monetary Fund and Head of their Monetary and Capital Markets Department since 2017. He was previously employed at the Fed ...
, the IMF's financial counsellor and head of its monetary and capital markets department said in a January 2022 interview that "Agreeing global regulations is never quick. But if we start now, we can achieve the goal of maintaining financial stability while also enjoying the benefits which the underlying technological innovations bring,"


United States

In 2021, 17 states passed laws and resolutions concerning cryptocurrency regulation. The U.S. Securities and Exchange Commission (SEC) is considering what steps to take. On 8 July 2021,
Senator Elizabeth Warren Elizabeth Ann Warren (née Herring; born June 22, 1949) is an American politician and former law professor who is the senior United States senator from Massachusetts, serving since 2013. A member of the Democratic Party and regarded as a pr ...
, part of the Senate Banking Committee, wrote to the chairman of the SEC and demanded that it provide answers on cryptocurrency regulation by 28 July 2021, due to the increase in cryptocurrency exchange use and the danger this poses to consumers. On 17 February 2022, the Justice department named Eun Young Choi as the first director of a National Cryptocurrency Enforcement Team to aid in identification of and dealing with misuse of cryptocurrencies and other digital assets.


China

In September 2017, China banned
ICOs Icos Corporation (trademark ICOS) was an American biotechnology company and the largest biotechnology company in the U.S. state of Washington, before it was sold to Eli Lilly and Company in 2007. It was founded in 1989 by David Blech, Isaac B ...
to cause
abnormal return In finance, an abnormal return is the difference between the actual return of a security and the expected return. Abnormal returns are sometimes triggered by "events." Events can include mergers, dividend announcements, company earning announcemen ...
from cryptocurrency decreasing during announcement window. The liquidity changes by banning ICOs in China was temporarily negative while the liquidity effect became positive after news. On 18 May 2021, China banned financial institutions and payment companies from being able to provide cryptocurrency transaction related services. This led to a sharp fall in the price of the biggest proof of work cryptocurrencies. For instance,
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
fell 31%, Ethereum fell 44%, Binance Coin fell 32% and
Dogecoin Dogecoin ( or , Abbreviation: DOGE; sign: Ð) is a cryptocurrency created by software engineers Billy Markus and Jackson Palmer, who decided to create a payment system as a "joke", making fun of the wild speculation in cryptocurrencies at the ...
fell 30%. Proof of work mining was the next focus, with regulators in popular mining regions citing the use of electricity generated from highly polluting sources such as coal to create Bitcoin and Ethereum. In September 2021, the Chinese government declared all cryptocurrency transactions of any kind illegal, completing its crackdown on cryptocurrency.


United Kingdom

In the United Kingdom, as of 10 January 2021, all cryptocurrency firms, such as exchanges, advisors and professionals that have either a presence, market product or provide services within the UK market must register with the Financial Conduct Authority. Additionally, on 27 June 2021, the financial watchdog demanded that
Binance Binance is a cryptocurrency exchange which is the largest exchange in the world in terms of daily trading volume of cryptocurrencies. It was founded in 2017 and is registered in the Cayman Islands. Binance was founded by Changpeng Zhao, a dev ...
, the world's largest cryptocurrency exchange, cease all regulated activities in the UK.


South Africa

South Africa, which has seen a large number of scams related to cryptocurrency, is said to be putting a regulatory timeline in place that will produce a regulatory framework. The largest scam occurred in April 2021, where the two founders of an African-based cryptocurrency exchange called Africrypt, Raees Cajee and Ameer Cajee, disappeared with $3.8 billion worth of
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
. Additionally, Mirror Trading International disappeared with $170 million worth of cryptocurrency in January 2021.


South Korea

In March 2021, South Korea implemented new legislation to strengthen their oversight of digital assets. This legislation requires all digital asset managers, providers and exchanges to be registered with the Korea Financial Intelligence Unit in order to operate in South Korea. Registering with this unit requires that all exchanges are certified by the Information Security Management System and that they ensure all customers have real name bank accounts. It also requires that the CEO and board members of the exchanges have not been convicted of any crimes and that the exchange holds sufficient levels of deposit insurance to cover losses arising from hacks.


Turkey

On 30 April 2021, the Central Bank of the Republic of Turkey banned the use of cryptocurrencies and cryptoassets for making purchases on the grounds that the use of cryptocurrencies for such payments poses significant transaction risks.


El Salvador

On 9 June 2021,
El Salvador El Salvador (; , meaning " The Saviour"), officially the Republic of El Salvador ( es, República de El Salvador), is a country in Central America. It is bordered on the northeast by Honduras, on the northwest by Guatemala, and on the south ...
announced that it will adopt
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
as legal tender, the first country to do so.


India

At present, India neither prohibits nor allows investment in the cryptocurrency market. In 2020, the Supreme Court of India had lifted the ban on cryptocurrency, which was imposed by the Reserve Bank of India. Since then, an investment in cryptocurrency is considered legitimate, though there is still ambiguity about the issues regarding the extent and payment of tax on the income accrued thereupon and also its regulatory regime. But it is being contemplated that the Indian Parliament will soon pass a specific law to either ban or regulate the cryptocurrency market in India. Expressing his public policy opinion on the Indian cryptocurrency market to a well-known online publication, a leading
public policy Public policy is an institutionalized proposal or a decided set of elements like laws, regulations, guidelines, and actions to solve or address relevant and real-world problems, guided by a conception and often implemented by programs. Public ...
lawyer and Vice President of SAARCLAW (South Asian Association for Regional Co-operation in Law)
Hemant Batra Hemant Batra (born 15 August 1967) is an Indian business, public policy, corporate and commercial senior practicing lawyer, newspaper – columnist writer author, TV anchor/Host, public speaker, commentator (law & public policy), mentor, and leg ...
has said that the "cryptocurrency market has now become very big with involvement of billions of dollars in the market hence, it is now unattainable and irreconcilable for the government to completely ban all sorts of cryptocurrency and its trading and investment". He mooted regulating the cryptocurrency market rather than completely banning it. He favoured following
IMF The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glob ...
and FATF guidelines in this regard.


Legality

The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. At least one study has shown that broad generalizations about the use of Bitcoin in illicit finance are significantly overstated and that blockchain analysis is an effective crime fighting and intelligence gathering tool. While some countries have explicitly allowed their use and trade, others have banned or restricted it. According to the
Library of Congress The Library of Congress (LOC) is the research library that officially serves the United States Congress and is the ''de facto'' national library of the United States. It is the oldest federal cultural institution in the country. The libra ...
in 2018, an "absolute ban" on trading or using cryptocurrencies applies in eight countries: Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, and the United Arab Emirates. An "implicit ban" applies in another 15 countries, which include Bahrain, Bangladesh, China, Colombia, the Dominican Republic, Indonesia, Iran, Kuwait, Lesotho, Lithuania, Macau, Oman, Qatar, Saudi Arabia and Taiwan. In the United States and Canada, state and provincial securities regulators, coordinated through the North American Securities Administrators Association, are investigating "Bitcoin scams" and
ICOs Icos Corporation (trademark ICOS) was an American biotechnology company and the largest biotechnology company in the U.S. state of Washington, before it was sold to Eli Lilly and Company in 2007. It was founded in 1989 by David Blech, Isaac B ...
in 40 jurisdictions. Various government agencies, departments, and courts have classified Bitcoin differently. China Central Bank banned the handling of Bitcoins by financial institutions in
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
in early 2014. In Russia, though owning cryptocurrency is legal, its residents are only allowed to purchase goods from other residents using the Russian ruble while nonresidents are allowed to use foreign currency. Regulations and bans that apply to Bitcoin probably extend to similar cryptocurrency systems. In August 2018, the
Bank of Thailand The Bank of Thailand (BOT) ( Abrv: ธปท.; th, ธนาคารแห่งประเทศไทย, ) is the central bank of Thailand. History The Bank of Thailand (BOT) was first set up as the Thai National Banking Bureau. The Bank ...
announced its plans to create its own cryptocurrency, the Central Bank Digital Currency (CBDC).


Advertising bans

Cryptocurrency advertisements have been banned on the following platforms: *
Google Google LLC () is an American Multinational corporation, multinational technology company focusing on Search Engine, search engine technology, online advertising, cloud computing, software, computer software, quantum computing, e-commerce, ar ...
*
Twitter Twitter is an online social media and social networking service owned and operated by American company Twitter, Inc., on which users post and interact with 280-character-long messages known as "tweets". Registered users can post, like, and ...
*
Facebook Facebook is an online social media and social networking service owned by American company Meta Platforms. Founded in 2004 by Mark Zuckerberg with fellow Harvard College students and roommates Eduardo Saverin, Andrew McCollum, Dust ...
* Bing *
Snapchat Snapchat is an American multimedia instant messaging app and service developed by Snap Inc., originally Snapchat Inc. One of the principal features of Snapchat is that pictures and messages are usually only available for a short time before the ...
*
LinkedIn LinkedIn () is an American business and employment-oriented online service that operates via websites and mobile apps. Launched on May 5, 2003, the platform is primarily used for professional networking and career development, and allows job se ...
* MailChimp * Baidu *
Tencent Tencent Holdings Ltd. () is a Chinese multinational technology and entertainment conglomerate and holding company headquartered in Shenzhen. It is one of the highest grossing multimedia companies in the world based on revenue. It is also the wo ...
*
Weibo Weibo may refer to: * Microblogging in China, or China-based microblogging services (), including: ** NetEase Weibo (), launched by NetEase ** People's Weibo (), launched by ''People's Daily'' ** Phoenix Weibo (), launched by Phoenix Television ** W ...
* Line * Yandex


U.S. tax status

On 25 March 2014, the United States
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory t ...
(IRS) ruled that Bitcoin will be treated as property for tax purposes. Therefore, virtual currencies are considered commodities subject to capital gains tax.


The legal concern of an unregulated global economy

As the popularity and demand for online currencies has increased since the inception of Bitcoin in 2009, so have concerns that such an unregulated person to person global economy that cryptocurrencies offer may become a threat to society. Concerns abound that altcoins may become tools for anonymous web criminals.ALI, S, T; CLARKE, D; MCCORRY, P; Bitcoin: Perils of an Unregulated Global P2P Currency launder_money._Money_laundering_issues_FinCEN_Files.html" ;"title="Money_laundering.html" ;"title="y S. T Ali, D. Clarke, P. McCorry Newcastle upon Tyne: Newcastle University: Computing Science, 2015. (Newcastle University, Computing Science, Technical Report Series, No. CS-TR-1470) Cryptocurrency networks display a lack of regulation that has been criticized as enabling criminals who seek to evade taxes and launder_money._Money_laundering_issues_FinCEN_Files">are_also_present_in_regular_bank_transfers,_however_with_bank-to-bank_wire_transfers_for_instance,_the_account_holder_must_at_least_Wire_transfer#Security.html" ;"title="Money laundering">launder money. Money laundering issues are_also_present_in_regular_bank_transfers,_however_with_bank-to-bank_wire_transfers_for_instance,_the_account_holder_must_at_least_Wire_transfer#Security">provide_a_proven_identity. Transactions_that_occur_through_the_use_and_exchange_of_these_altcoins_are_independent_from_formal_banking_systems,_and_therefore_can_make_tax_evasion_simpler_for_individuals._Since_charting_taxable_income_is_based_upon_what_a_recipient_reports_to_the_revenue_service,_it_becomes_extremely_difficult_to_account_for_transactions_made_using_existing_cryptocurrencies,_a_mode_of_exchange_that_is_complex_and_difficult_to_track. Systems_of_anonymity_that_most_cryptocurrencies_offer_can_also_serve_as_a_simpler_means_to_launder_money._Rather_than_laundering_money_through_an_intricate_net_of_financial_actors_and_offshore_bank_accounts,_laundering_money_through_altcoins_can_be_achieved_through_anonymous_transactions. Cryptocurrency_makes_legal_enforcement_against_extremist_groups_more_complicated,_which_consequently_strengthens_them._White_supremacist_Richard_B._Spencer.html" ;"title="FinCEN Files">are also present in regular bank transfers, however with bank-to-bank wire transfers for instance, the account holder must at least Wire transfer#Security">provide a proven identity. Transactions that occur through the use and exchange of these altcoins are independent from formal banking systems, and therefore can make tax evasion simpler for individuals. Since charting taxable income is based upon what a recipient reports to the revenue service, it becomes extremely difficult to account for transactions made using existing cryptocurrencies, a mode of exchange that is complex and difficult to track. Systems of anonymity that most cryptocurrencies offer can also serve as a simpler means to launder money. Rather than laundering money through an intricate net of financial actors and offshore bank accounts, laundering money through altcoins can be achieved through anonymous transactions. Cryptocurrency makes legal enforcement against extremist groups more complicated, which consequently strengthens them. White supremacist Richard B. Spencer">Richard Spencer went as far as to declare Bitcoin the “currency of the alt-right.”


Loss, theft, and fraud

In February 2014, the world's largest Bitcoin exchange, Mt. Gox, declared bankruptcy. Likely due to theft, the company claimed that it had lost nearly 750,000 Bitcoins belonging to their clients. This added up to approximately 7% of all Bitcoins in existence, worth a total of $473 million. Mt. Gox blamed hackers, who had exploited the
transaction malleability problem The transaction malleability problem is a vulnerability in blockchain which can be exploited by altering a cryptographic hash A cryptographic hash function (CHF) is a hash algorithm (a map of an arbitrary binary string to a binary string with ...
s in the network. The price of a Bitcoin fell from a high of about $1,160 in December to under $400 in February. On 21 November 2017, Tether announced that it had been hacked, losing $31 million in USDT from its core treasury wallet. On 7 December 2017, Slovenian cryptocurrency exchange Nicehash reported that hackers had stolen over $70M using a hijacked company computer. On 19 December 2017, Yapian, the owner of South Korean exchange Youbit, filed for bankruptcy after suffering two hacks that year. Customers were still granted access to 75% of their assets. In May 2018,
Bitcoin Gold Bitcoin Gold (BTG) is a cryptocurrency. It is a hard fork of Bitcoin, the open source cryptocurrency. It is an open source, decentralized digital currency without a central bank or intermediary that can be sent from user to user on the peer-to-pe ...
had its transactions hijacked and abused by unknown hackers. Exchanges lost an estimated $18m and Bitcoin Gold was delisted from Bittrex after it refused to pay its share of the damages. On 13 September 2018, Homero Josh Garza was sentenced to 21 months of imprisonment, followed by three years of supervised release. Garza had founded the cryptocurrency startups GAW Miners and ZenMiner in 2014, acknowledged in a
plea agreement A plea bargain (also plea agreement or plea deal) is an agreement in criminal law proceedings, whereby the prosecutor provides a concession to the defendant in exchange for a plea of guilt or '' nolo contendere.'' This may mean that the defenda ...
that the companies were part of a
pyramid scheme A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly i ...
, and pleaded guilty to wire fraud in 2015. The U.S.
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
separately brought a civil enforcement action against Garza, who was eventually ordered to pay a judgment of $9.1 million plus $700,000 in interest. The SEC's complaint stated that Garza, through his companies, had fraudulently sold "investment contracts representing shares in the profits they claimed would be generated" from mining. In January 2018, Japanese exchange
Coincheck Coincheck is a Japanese bitcoin wallet and exchange service headquartered in Tokyo, Japan, founded by Koichiro Wada and Yusuke Otsuka. It operates exchanges between bitcoin, ether and fiat currencies in Japan, and bitcoin transactions and stora ...
reported that hackers had stolen $530M worth of cryptocurrencies. In June 2018, South Korean exchange Coinrail was hacked, losing over $37M worth of cryptos. The hack worsened an already ongoing cryptocurrency selloff by an additional $42 billion. On 9 July 2018, the exchange Bancor, whose code and fundraising had been subjects of controversy, had $23.5 million in cryptocurrency stolen. A 2020 EU report found that users had lost crypto-assets worth hundreds of millions of US dollars in security breaches at exchanges and storage providers. Between 2011 and 2019, reported breaches ranged from four to twelve a year. In 2019, more than a billion dollars worth of cryptoassets was reported stolen. Stolen assets "typically find their way to illegal markets and are used to fund further criminal activity". According to a 2020 report produced by the
United States Attorney General The United States attorney general (AG) is the head of the United States Department of Justice, and is the chief law enforcement officer of the federal government of the United States. The attorney general serves as the principal advisor to the p ...
's Cyber-Digital Task Force, the following three categories make up the majority of illicit cryptocurrency uses: "(1) financial transactions associated with the commission of crimes; (2)
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...
and the shielding of legitimate activity from tax, reporting, or other legal requirements; or (3) crimes, such as theft, directly implicating the cryptocurrency marketplace itself." The report concludes that "for cryptocurrency to realize its truly transformative potential, it is imperative that these risks be addressed" and that "the government has legal and regulatory tools available at its disposal to confront the threats posed by cryptocurrency's illicit uses". According to the UK 2020 national risk assessment—a comprehensive assessment of money laundering and terrorist financing risk in the UK—the risk of using cryptoassets such as Bitcoin for money laundering and terrorism financing is assessed as "medium" (from "low" in the previous 2017 report). Legal scholars suggested that the money laundering opportunities may be more perceived than real.
Blockchain analysis Blockchain analysis is the process of inspecting, identifying, Data Clustering, clustering, Data modeling, modeling and visually representing data on a Cryptographic hash function, cryptographic distributed-ledger known as a blockchain. The goal of ...
company Chainalysis concluded that illicit activities like
cybercrime A cybercrime is a crime that involves a computer or a computer network.Moore, R. (2005) "Cyber crime: Investigating High-Technology Computer Crime," Cleveland, Mississippi: Anderson Publishing. The computer may have been used in committing t ...
,
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...
and terrorism financing made up only 0.15% of all crypto transactions conducted in 2021, representing a total of $14 billion. In December 2021, Monkey Kingdom - a NFT project based in Hong Kong lost US$1.3 million worth of cryptocurrencies via a phishing link used by the hacker.


Money laundering

According to blockchain data company
Chainalysis Chainalysis is an American blockchain analysis firm headquartered in New York City. The company was co-founded by Michael Gronager and Jonathan Levin in 2014. Its customers have included the United States's Federal Bureau of Investigation, Drug ...
, criminals laundered worth of cryptocurrency in 2021, up by 30% from the previous year. The data suggests that rather than managing numerous illicit havens, cybercriminals make use of a small group of purpose built centralized exchanges for sending and receiving illicit cryptocurrency. In 2021, those exchanges received 47% of funds sent by crime linked addresses. Almost $2.2bn worth of cryptocurrencies was embezzled from DeFi protocols in 2021, which represents 72% of all cryptocurrency theft in 2021. According to Bloomberg and the New York Times, Federation Tower, a two skyscraper complex in the heart of Moscow City, is home to many cryptocurrency businesses under suspicion of facilitating extensive money laundering, including accepting illicit cryptocurrency funds obtained through scams, darknet markets, and ransomware. Notable businesses include Garantex, Eggchange, Cashbank, Buy-Bitcoin, Tetchange, Bitzlato, and Suex, which was sanctioned by the U.S. in 2021. Dark money has also been flowing into Russia through a dark web marketplace called Hydra, which is powered by cryptocurrency, and enjoyed more than $1 billion in sales in 2020, according to Chainalysis. The platform demands that sellers liquidate cryptocurrency only through certain regional exchanges, which has made it difficult for investigators to trace the money. Almost 74% of ransomware revenue in 2021 — over $400 million worth of cryptocurrency — went to software strains likely affiliated with Russia, where oversight is notoriously limited. However, Russians are also leaders in the benign adoption of cryptocurrencies, as the ruble is unreliable, and President Putin favours the idea of "overcoming the excessive domination of the limited number of reserve currencies."


Darknet markets

Properties of cryptocurrencies gave them popularity in applications such as a safe haven in banking crises and means of payment, which also led to the cryptocurrency use in controversial settings in the form of online black markets, such as
Silk Road The Silk Road () was a network of Eurasian trade routes active from the second century BCE until the mid-15th century. Spanning over 6,400 kilometers (4,000 miles), it played a central role in facilitating economic, cultural, political, and rel ...
. The original Silk Road was shut down in October 2013 and there have been two more versions in use since then. In the year following the initial shutdown of Silk Road, the number of prominent dark markets increased from four to twelve, while the amount of drug listings increased from 18,000 to 32,000. Darknet markets present challenges in regard to legality. Cryptocurrency used in dark markets are not clearly or legally classified in almost all parts of the world. In the U.S., Bitcoins are labelled as "virtual assets". This type of ambiguous classification puts pressure on law enforcement agencies around the world to adapt to the shifting drug trade of dark markets.


Wash trades

Various studies have found that crypto-trading is rife with wash trading. Wash trading is a process, illegal in some jurisdictions, involving buyers and sellers being the same person or group, and may be used to manipulate the price of a cryptocurrency or inflate volume artificially. Exchanges with higher volumes can demand higher premiums from token issuers. A study from 2019 concluded that up to 80% of trades on unregulated cryptocurrency exchanges could be wash trades. A 2019 report by Bitwise Asset Management claimed that 95% of all Bitcoin trading volume reported on major website CoinMarketCap had been artificially generated, and of 81 exchanges studied, only 10 provided legitimate volume figures.


As a tool to evade sanctions

In 2022, cryptocurrencies attracted attention when Western nations imposed severe economic sanctions on Russia in the aftermath of its invasion of Ukraine in February. However, American sources warned in March that some crypto-transactions could potentially be used to evade economic sanctions against Russia and Belarus. In April 2022, the computer programmer Virgil Griffith received a five-year prison sentence in the US for attending a Pyongyang cryptocurrency conference, where he gave a presentation on blockchains which might be used for sanctions evasion.


Impacts and analysis

The
Bank for International Settlements The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work th ...
summarized several criticisms of cryptocurrencies in Chapter V of their 2018 annual report. The criticisms include the lack of stability in their price, the high energy consumption, high and variable transactions costs, the poor security and fraud at cryptocurrency exchanges, vulnerability to debasement (from forking), and the influence of miners.


Speculation, fraud, and adoption

Cryptocurrencies have been compared to Ponzi schemes,
pyramid scheme A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly i ...
s and
economic bubble An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be c ...
s, such as housing market bubbles. Howard Marks of Oaktree Capital Management stated in 2017 that digital currencies were "nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it", and compared them to the tulip mania (1637), South Sea Bubble (1720), and
dot-com bubble The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Comp ...
(1999), which all experienced profound price booms and busts. Regulators in several countries have warned against cryptocurrency and some have taken measures to dissuade users. However, research in 2021 by the UK's financial regulator suggests such warnings either went unheard, or were ignored. Fewer than one in 10 potential cryptocurrency buyers were aware of consumer warnings on the FCA website, and 12% of crypto users were not aware that their holdings were not protected by statutory compensation. Of 1,000 respondents between the ages of eighteen and forty, almost 70% falsely assumed cryptocurrencies were regulated, 75% of younger crypto investors claimed to be driven by competition with friends and family, 58% said that social media enticed them to make high risk investments. The FCA recommends making use of its warning list, which flags unauthorized financial firms. Many banks do not offer virtual currency services themselves and can refuse to do business with virtual currency companies. In 2014, Gareth Murphy, a senior banking officer, suggested that the widespread adoption of cryptocurrencies may lead to too much money being
obfuscated Obfuscation is the obscuring of the intended meaning of communication by making the message difficult to understand, usually with confusing and ambiguous language. The obfuscation might be either unintentional or intentional (although intent us ...
, blinding economists who would use such information to better steer the economy. While traditional financial products have strong consumer protections in place, there is no intermediary with the power to limit consumer losses if Bitcoins are lost or stolen. One of the features cryptocurrency lacks in comparison to credit cards, for example, is consumer protection against fraud, such as chargebacks. The French regulator Autorité des marchés financiers (AMF) lists 16 websites of companies that solicit investment in cryptocurrency without being authorized to do so in France. An October 2021 paper by the National Bureau of Economic Research found that Bitcoin suffers from systemic risk as the top 10,000 addresses control about one-third of all Bitcoin in circulation. It's even worse for Bitcoin miners, with 0.01% controlling 50% of the capacity. According to researcher Flipside Crypto, less than 2% of anonymous accounts control 95% of all available Bitcoin supply. This is considered risky as a great deal of the market is in the hands of a few entities. A paper by John Griffin, a finance professor at the
University of Texas The University of Texas at Austin (UT Austin, UT, or Texas) is a public research university in Austin, Texas. It was founded in 1883 and is the oldest institution in the University of Texas System. With 40,916 undergraduate students, 11,075 ...
, and Amin Shams, a graduate student found that in 2017 the price of Bitcoin had been substantially inflated using another cryptocurrency, Tether.
Roger Lowenstein Roger Lowenstein (born 1954) is an American financial journalist and writer. He graduated from Cornell University and reported for ''The Wall Street Journal'' for more than a decade, including two years writing its '' Heard on the Street'' column, ...
, author of "''Bank of America: The Epic Struggle to Create the Federal Reserve,''" says in a New York Times story that FTX will face over $8 billion in claims.


Non-fungible tokens

Non-fungible tokens (NFTs) are digital assets that represent art, collectibles, gaming, etc. Like crypto, their data is stored on the blockchain. NFTs are bought and traded using cryptocurrency. The Ethereum blockchain was the first place where NFTs were implemented, but now many other blockchains have created their own versions of NFTs. The popularity of NFTs has increased since 2021.


Banks

As the first big Wall Street bank to embrace cryptocurrencies,
Morgan Stanley Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...
announced on 17 March 2021 that they will be offering access to
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
funds for their wealthy clients through three funds which enable
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
ownership for investors with an aggressive risk tolerance. BNY Mellon on 11 February 2021 announced that it would begin offering cryptocurrency services to its clients. On 20 April 2021, Venmo added support to its platform to enable customers to buy, hold and sell cryptocurrencies. In October 2021, financial services company Mastercard announced it is working with digital asset manager
Bakkt Bakkt Holdings, Inc. is an American corporation listed on the New York Stock Exchange under the ticker symbol BKKT. The company operates a technology platform for the management of digital assets. The platform provides products and services relate ...
on a platform that would allow any bank or merchant on the Mastercard network to offer cryptocurrency services.


Environmental impact

Mining for proof-of-work cryptocurrencies requires enormous amounts of electricity and consequently comes with a large
carbon footprint A carbon footprint is the total greenhouse gas (GHG) emissions caused by an individual, event, organization, service, place or product, expressed as carbon dioxide equivalent (CO2e). Greenhouse gases, including the carbon-containing gases carbo ...
due to causing
greenhouse gas emissions Greenhouse gas emissions from human activities strengthen the greenhouse effect, contributing to climate change. Most is carbon dioxide from burning fossil fuels: coal, oil, and natural gas. The largest emitters include coal in China and ...
. Proof-of-work blockchains such as Bitcoin, Ethereum,
Litecoin Litecoin (Abbreviation: LTC; sign: Ł) is a decentralized peer-to-peer cryptocurrency and open-source software project released under the MIT/X11 license. Inspired by Bitcoin, Litecoin was among the earliest altcoins, starting in October 201 ...
, and
Monero Monero (; Abbreviation: XMR) is a decentralized cryptocurrency. It uses a public distributed ledger with privacy-enhancing technologies that obfuscate transactions to achieve anonymity and fungibility. Observers cannot decipher addresses tra ...
were estimated to have added between 3 million and 15 million tonnes of carbon dioxide () to the atmosphere in the period from 1 January 2016 to 30 June 2017. By November 2018, Bitcoin was estimated to have an annual energy consumption of 45.8TWh, generating 22.0 to 22.9 million tonnes of , rivalling nations like
Jordan Jordan ( ar, الأردن; tr. ' ), officially the Hashemite Kingdom of Jordan,; tr. ' is a country in Western Asia. It is situated at the crossroads of Asia, Africa, and Europe, within the Levant region, on the East Bank of the Jordan Rive ...
and
Sri Lanka Sri Lanka (, ; si, ශ්‍රී ලංකා, Śrī Laṅkā, translit-std=ISO (); ta, இலங்கை, Ilaṅkai, translit-std=ISO ()), formerly known as Ceylon and officially the Democratic Socialist Republic of Sri Lanka, is an ...
. By the end of 2021, Bitcoin was estimated to produce 65.4 million tonnes of , as much as
Greece Greece,, or , romanized: ', officially the Hellenic Republic, is a country in Southeast Europe. It is situated on the southern tip of the Balkans, and is located at the crossroads of Europe, Asia, and Africa. Greece shares land borders wi ...
, and consume between 91 and 177 terawatt-hours annually. Critics have also identified a large electronic waste problem in disposing of mining rigs. Mining hardware is improving at a fast rate, quickly resulting in older generations of hardware. Bitcoin is the least energy-efficient cryptocurrency, using 707.6 kilowatt-hours of electricity per transaction. The world's second-largest cryptocurrency, Ethereum, uses 62.56 kilowatt-hours of electricity per transaction.
XRP Ripple is a real-time gross settlement system, currency exchange and remittance network created by Ripple Labs Inc., a US-based technology company. Released in 2012, Ripple is built upon a distributed open source protocol, and supports tokens ...
is the world's most energy efficient cryptocurrency, using 0.0079 kilowatt-hours of electricity per transaction. Although the biggest PoW blockchains consume energy on the scale of medium-sized countries, the annual power demand from proof-of-stake (PoS) blockchains is on a scale equivalent to a housing estate. ''The Times'' identified six "environmentally friendly" cryptocurrencies: Chia,
IOTA Iota (; uppercase: Ι, lowercase: ι; ) is the ninth letter of the Greek alphabet. It was derived from the Phoenician letter Yodh. Letters that arose from this letter include the Latin I and J, the Cyrillic І (І, і), Yi (Ї, ї), and ...
, Cardano, Nano, Solarcoin and Bitgreen. Academics and researchers have used various methods for estimating the energy use and energy efficiency of blockchains. A study of the six largest proof-of-stake networks in May 2021 concluded: * Cardano has the lowest electricity use per node; * Polkadot has the lowest electricity use overall; and * Solana has the lowest electricity use per transaction. In terms of annual consumption (kWh/yr), the figures were: Polkadot (70,237),
Tezos Tezos is an open-source blockchain that can execute peer-to-peer transactions and serve as a platform for deploying smart contracts. The native cryptocurrency for the Tezos blockchain is the tez (ISO 4217: XTZ; sign: ꜩ). The Tezos network ac ...
(113,249),
Avalanche An avalanche is a rapid flow of snow down a slope, such as a hill or mountain. Avalanches can be set off spontaneously, by such factors as increased precipitation or snowpack weakening, or by external means such as humans, animals, and ea ...
(489,311),
Algorand Algorand is a proof-of-stake blockchain cryptocurrency protocol. Algorand's native cryptocurrency is called ALGO. History Algorand was founded in 2017 by Silvio Micali, a professor at MIT. Algorand is composed of a company and a foundation. Th ...
(512,671), Cardano (598,755) and Solana (1,967,930). This equates to Polkadot consuming 7 times the electricity of an average U.S. home, Cardano 57 homes and Solana 200 times as much. The research concluded that PoS networks consumed 0.001% the electricity of the Bitcoin network. University College London researchers reached a similar conclusion. Variable renewable energy power stations could invest in Bitcoin mining to reduce curtailment,
hedge A hedge or hedgerow is a line of closely spaced shrubs and sometimes trees, planted and trained to form a barrier or to mark the boundary of an area, such as between neighbouring properties. Hedges that are used to separate a road from adjoi ...
electricity price risk, stabilize the grid, increase the profitability of renewable energy power stations and therefore accelerate transition to sustainable energy.


Technological limitations

There are also purely technical elements to consider. For example, technological advancement in cryptocurrencies such as Bitcoin result in high up-front costs to miners in the form of specialized hardware and
software Software is a set of computer programs and associated documentation and data. This is in contrast to hardware, from which the system is built and which actually performs the work. At the lowest programming level, executable code consist ...
. Cryptocurrency transactions are normally irreversible after a number of blocks confirm the transaction. Additionally, cryptocurrency private keys can be permanently lost from local storage due to malware, data loss or the destruction of the physical media. This precludes the cryptocurrency from being spent, resulting in its effective removal from the markets.


Academic studies

In September 2015, the establishment of the peer-reviewed
academic journal An academic journal or scholarly journal is a periodical publication in which scholarship relating to a particular academic discipline is published. Academic journals serve as permanent and transparent forums for the presentation, scrutiny, and ...
''
Ledger A ledger is a book or collection of accounts in which account transactions are recorded. Each account has an opening or carry-forward balance, and would record each transaction as either a debit or credit in separate columns, and the ending or ...
'' () was announced. It covers studies of cryptocurrencies and related technologies, and is published by the
University of Pittsburgh The University of Pittsburgh (Pitt) is a public state-related research university in Pittsburgh, Pennsylvania. The university is composed of 17 undergraduate and graduate schools and colleges at its urban Pittsburgh campus, home to the univers ...
. The journal encourages authors to digitally sign a file hash of submitted papers, which will then be timestamped into the Bitcoin
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, ...
. Authors are also asked to include a personal Bitcoin address in the first page of their papers.


Aid agencies

A number of aid agencies have started accepting donations in cryptocurrencies, including UNICEF. Christopher Fabian, principal adviser at UNICEF Innovation, said the children's fund would uphold donor protocols, meaning that people making donations online would have to pass checks before they were allowed to deposit funds. However, in 2021, there was a backlash against donations in Bitcoin because of the environmental emissions it caused. Some agencies stopped accepting Bitcoin and others turned to "greener" cryptocurrencies. The U.S. arm of Greenpeace stopped accepting bitcoin donations after seven years. It said: "As the amount of energy needed to run Bitcoin became clearer, this policy became no longer tenable." In 2022, the Ukrainian government raised over worth of aid through cryptocurrency following the
2022 Russian invasion of Ukraine On 24 February 2022, in a major escalation of the Russo-Ukrainian War, which began in 2014. The invasion has resulted in tens of thousands of deaths on both sides. It has caused Europe's largest refugee crisis since World War II. A ...
.


Criticism

Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
has been characterized as a speculative bubble by eight
winners of the Nobel Memorial Prize in Economic Sciences The Nobel Memorial Prize in Economic Sciences, officially known as The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Swedish: ''Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne''), is an award funded ...
:
Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was t ...
, Robert J. Shiller, Joseph Stiglitz, Richard Thaler, James Heckman,
Thomas Sargent Thomas John Sargent (born July 19, 1943) is an American economist and the W.R. Berkley Professor of Economics and Business at New York University. He specializes in the fields of macroeconomics, monetary economics, and time series econometr ...
, Angus Deaton, and Oliver Hart; and by central bank officials including
Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
, Agustín Carstens, Vítor Constâncio, and
Nout Wellink Arnout Henricus Elisabeth Maria "Nout" Wellink (born 27 August 1943) is a Dutch economist and former central banker. In 2010, ''Financial News'' determined that Wellink was the man who was believed to have wielded the greatest influence on worldw ...
. The investors Warren Buffett and George Soros have respectively characterized it as a "mirage" and a "bubble"; while the business executives Jack Ma and J.P. Morgan Chase CEO Jamie Dimon have called it a "bubble" and a "fraud", respectively, although Jamie Dimon later said he regretted dubbing Bitcoin a fraud. BlackRock CEO Laurence D. Fink called Bitcoin an "index of
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...
". In June 2022,
Bill Gates William Henry Gates III (born October 28, 1955) is an American business magnate and philanthropist. He is a co-founder of Microsoft, along with his late childhood friend Paul Allen. During his career at Microsoft, Gates held the positions ...
said that cryptocurrencies are "100% based on
greater fool theory In finance, the greater fool theory suggests that one can sometimes make money through the purchase of overvalued items with a purchase price drastically exceeding the intrinsic valueif those assets can later be resold at an even higher price. I ...
".


Crypto-related suicides

In 2018, an increase in crypto-related suicides was noticed after the cryptocurrency market crashed in August. The situation was particularly critical in Korea as crypto traders were on "suicide watch". A cryptocurrency forum on Reddit even started providing suicide prevention support to affected investors. The May 2022 collapse of the Luna currency operated by Terra also led to reports of suicidal investors in crypto-related subreddits.


See also

*
2018 crypto crash A cryptocurrency bubble is a phenomenon where the market increasingly considers the going price of cryptocurrency assets to be inflated against their hypothetical value. The history of cryptocurrency has been marked by several speculative bubbl ...
* Blockchain-based remittances company *
Cryptocurrency bubble A cryptocurrency bubble is a phenomenon where the market increasingly considers the going price of cryptocurrency assets to be inflated against their hypothetical value. The history of cryptocurrency has been marked by several speculative bubbl ...
*
Cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
*
Cryptographic protocol A security protocol (cryptographic protocol or encryption protocol) is an abstract or concrete protocol that performs a security-related function and applies cryptographic methods, often as sequences of cryptographic primitives. A protocol descri ...
*
List of cryptocurrencies , - , , , , , , , After the creation of bitcoin, the number of new cryptocurrencies A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer ne ...
* Virtual currency law in the United States


References


Further reading

* *


External links

* * * Wikiversity:Should cryptocurrencies be banned? {{Authority control Financial technology Decentralization Applications of cryptography