The Rise of Cryptocurrencies

in #cryptocurrency8 years ago (edited)

Paper I wrote for school about the economics of cryptocurrencies. Any feedback is greatly appreciated!

Introduction

Most people believe that they know what is money, but the rise of cryptocurrencies made lots of people rethink how they define currency. During the age of the Internet, money no longer needs to be physical. With the rise of networks like Facebook, eBay, and BitTorrent, people now see that networks can quickly gain value and influence without the backing of governments. Are cryptocurrencies trendy gimmicks, or do they represent a new system of tools that can be used to transform policy and finance through the use of technology? To understand the Bitcoin phenomenon, one must be able to temporarily take a step back from traditional schools of economic thought and consider computer science and the economics of networks.

What is Currency?

Money is anything that is widely used for making payments and accounting for debts and credits [1]. Money has several functions: unit of account, common measure of value, medium of exchange, means of payment, standard for deferred payment, and store of value [1]. It may also serve the functions of liquid asset, framework for market allocative system, causative factor in the economy, and controller of the economy [1]. At first, it may seem that anything can serve as currency, but it is important to examine each currency’s primary functions. However, there is no standard for which function is necessarily the most important, because the people value the different functions of money differently at different times and places [1]. It is important to note that unit of account and common measure of money are abstract models for explaining why money works, while medium of exchange, means of payment, and store of value are more concrete concepts [1, 5]. The dollar does not exist as a real thing; it is a unit of account that makes measuring one’s bank balance easier [1]. Most modern fiat currencies have different units of account, but function in the same way.

An important aspect of money is that it is a mechanism that allows markets to clear more efficiently [1]. Money is fungible and can be divided up into smaller units, so it is a much more efficient mechanism than bartering for smoothly balancing out excess demand and supply in a market [1]. However, money is not perfect and there is a conflict of interests between debtors who want to increase the quantity of money and creditors who want to increase the quality of money. Excessive quantity of money can lead to hyperinflation, while excessive focus on quality can lead to deflation and stunt the growth of the economy. Economists generally agree that a stable, low level of inflation is ideal [1].

Ecology can be used as a model for the economy. Life has increasing self-organization, irreversible increasing entropy, and increasing specialization. Ecosystems grow to capture all resources and compete with other ecosystems at their boundaries. These characteristics of life and ecosystems also apply to economies [4]. The economy is forever evolving, much like life. This means that utopias cannot exist and that there will never be permanent equilibriums [4]. The economy closest to equilibrium is North Korea; lack of evolution hurts economies.
Life and value are not things, but rather processes [4]. Typically, people think of a flower as simply an object, but it can also be defined as a self-optimizing process that creates more flowers. The flower is not simply alive right now, but it represents a flow of life through time and space. Life flows from the soil to the flower, then to the bees, and also to the seeds, which become the next generation of flowers [4]. The flow of value in the form of products and services behave the same way. The continual and increasingly efficient creation of a product allows more and more value to flow through the economy [4].

Even commodity currencies do not have inherit value based on their utility. For example, before aluminum could be commercially purified, it was considered a precious metal. Napoleon III ate off aluminum plates at official state dinners [1]. Aluminum is no less useful today, but due to its abundance, it is now one of the cheapest metals. This shows that price is a belief in value based on human perceptions of scarcity, not inherent utility of a good. The velocity of money is inversely proportional to the money supply. So when the supply of aluminum increase and the trade of aluminum did not decrease, the value of aluminum greatly depreciated.

Currency can also be explained by the economics of networks. A network graph has nodes and edges, where nodes represent people and edges represent transactions. Money can be seen as a piece of information that represents value [5]. Nodes interact with each other through reciprocal exchange. In a market, people can easily buy and sell and neglect long term trade agreements. However, in a system dominated by reciprocal exchange, markets cannot function efficiently [18]. Repeated interaction, reputation mechanisms, and high costs of breaking contracts can enforce sustained exchange systems [18]. When the market is larger, the enforceable level of reciprocal exchange is lower; however, even in large markets, if the agents need what their partners produce and place a high value on future utility, reciprocal exchange can be enforced [18].

Cryptocurrencies greatly incentivize reciprocal exchange due to the nature of their functions and algorithms. Cryptocurrencies do not require any trust in humans. The trust is completely in the legitimacy of the math of the network system. Cryptocurrencies use the concept of public key encryption to legitimize the system and ensure trust between anonymous parties [2]. When you send a Bitcoin, the transaction can be seen public, but only the intended receiver has the private key to decrypt the message, in this case the message being a piece of information that represents value. Therefore, Bitcoin is a currency without any physical store of value, yet deals with secure transactions that are anonymous yet public [5].

People throughout history are used to feel something physical in order to perceive that it has value, but that is an illusion. Paper currency represents a claim to value but it is no more valuable than bits of electronic data in utility. Currency is a social protocol where a network of believers participates in transactions [5]. Trading between nodes is a mutual agreement to exchange the currency for something else believed to be of equal value. This requires a shared belief system between the parties participating in the trade. Money can also be understood as a belief in value [4, 5]. Bonds, shares, and paper money don’t have value in themselves, but they represent value within a legal or social system [4]. They have no value outside of their social context. For example, a restaurant in New York would not accept Icelandic Krona as payment for a meal even if the customer offers to overpay, because one party does not see the Krona as a medium of exchange [4, 5]. Even though the Icelandic government may back up the worth of the Krona, it is worthless to the restaurant in New York, because it would be an isolated node that is unable to interact with the rest of the economy. Cryptocurrencies trade freely over the Internet, so they do not face the network node isolation problems of traditional currencies.

A currency has speculative and transactional utility. Its transactional utility is driven by its network attributes: number of people or nodes in the network, number of links between the nodes, and average node capacity or transactions per unit of time. When nodes or links are added to a network, value of the network grows exponentially past a certain threshold [5]. “Most internet businesses are really just network building and matching tools, from search engines matching data with users to dating sites. Networks create value by adding data nodes, links and link option exposed to users with just the right dimensions and volumes of information at the right time” [5]. Liquidity is an important proper that drives the speed of transactions between nodes. Cryptocurrencies are very liquid; they can be quickly exchanged for fiat currencies or other cryptocurrencies via many exchange websites and apps. Transactions are faster and fees are far less than credit cards and other traditional banking tools. The transactions for selling and purchasing goods is also very secure and quick. In addition, no corporation or government gets a cut of any transaction. All these types of transactions contribute to expanding the network of cryptocurrencies [5].
Network flows can be demand or supply driven. When fiat currencies are anticipated to fail, the gold network experiences significant demand driven flow [5]. Government spending stimulates supply driven flows. Cryptocurrencies also mostly incentivize supply driven flow [5]. Currency can behave similarly to fax machines: one fax machine is worthless, but if everyone uses fax machines, they become much more valuable.

History of Currency

For the greater of part history bartering was the sole form of exchange. Currency emerged out of bartering to handle the increasing complexity of trade [1]. At first a specific item is preferred in trades, then it becomes the commonly accepted medium of exchange. These items were typically chosen because they were convenient to store, portable, durable, and have high value density [1]. When established markets were set up, people shifted even more towards using money. The progression is usually barter, barter plus primitive money, primitive money, primitive plus modern money, then modern money, there are some cases of skips and regressions [1].

Ancient humans did not separate their religious, social, and economic lives. Primitive currencies arose when people realized that certain items served multiple functions, for example, as both a religious symbol and as a decoration ornament. These items became used as a primitive form of money at the cost of losing their original religious associations [1]. Some experts argue that the use of such items should not be considered currency, because the range of their application was too narrow; however, even today there is no universal money or banking [1].

Marriage and war were some of the oldest of human activities, so they were associated with the earliest forms of money [1]. The compensation or fine for killing a man is almost universally present in all ancient cultures. In fact, the word “pay” comes from the Latin word “pacare,” which means to pacify or appease through the exchange of value that is acceptable to both parties [1]. Similarly, there was a “bride-price” on the value lost from marrying off a daughter in most ancient cultures [1]. This then generalized to payment for any human services, which gave birth both service jobs and slavery. Slave labor became a medium of exchange and slaves effectively acted as walking cheque-books [1].

A key concept of economics is limited resource usage, and that is reflected in coinage. Coinage and banking often go together, but that is not always the case. In ancient Babylon, there was a banking system before coinage, while in Britain, banking came 1000 years after coinage [1]. Progress was not consistently linear among different societies.
Cowrie was the first ubiquitous form of primitive money and had a longevity of thousands of years. They varied in shape, color, and size and were very common on beaches of the Indian and Pacific Oceans. The biggest source was the Maldive Islands, which exported shiploads of cowrie to Africa, Oceania, Middle East, and East Asia [1]. cowries are durable, portable, easily cleaned and counted, and defy imitation or counterfeiting, so they were a good store of value, medium of exchange, and unit of account. The further away from the origin source, the rarer cowries became, so they were more valuable inland. In the late 1700s, a woman in Central Africa could be purchased for only 2 cowries. But by the 1860s, a woman’s price inflated to over 1000 cowries [1]. As trade volume increased and transportation improved, there was a rapid increase in the quantity of cowries. This caused cowries to greatly depreciate through hyperinflation. Still, it’s surprising that cowries were able to coexists with modern currencies until the mid-20th century in remote parts of Africa. In fact, at times, they were able to debase coinage from official acceptance [1]. This appeal of commodity based currency is still present today in gold and other precious metals.

The gold standard dominated the 1800s, especially in England. In a gold standard system, suppose that prices rose in country B relative to country A, then gold would flow from B to A, decreasing B’s monetary base while raising A’s. B would lose exports and gain imports, which leads to a lower level of income in B and an increase in B’s interest rates. This would eventually restore equilibrium [1]. This encouraged a laissez faire approach to monetary policy. The world economy grew along with the world’s stock of monetary gold [1]. Then, the international crisis of 1907 brought along widespread bank failures. Bank rates sharply rose to help rebuild the gold reserve, the dropped back down. However, this did not solve the unemployment problems [1]. World War I then contributed to Britain’s debt. This was when John Maynard Keynes proposed his plans for saving the European economy. He wanted to loan to Austria and rebuild Europe and also get rid of the gold standard. He advocated for cheap money in recovery, war, and reconstruction [1]. This led to most modern countries adopting fiat currency.

Currency prices reflect transactional and speculative utilities. Fiat currencies have low volatility due to low speculative utility and stable money supply [5]. Central banks issue and buy government bonds on the open market to control the inflation rates. This control by governments to keep currency price stable encourages people to join the network [5]. People want to feel the security that their money does not fluctuate too much in price. Today, most people in most countries use the fiat currency backed by their own governments. Increasing, people are seeking freedom from location and government control, especially in developing countries. Cryptocurrencies are not affected by corruption or bad economic policies, so much like gold, people will turn to cryptocurrencies when they lose faith in the government’s economic policies [21]. There are entrepreneurial platforms that actively help Nigerians and other Africans to move toward using the more trusted Bitcoin rather than their country’s fiat currency.

What is Cryptocurrency?

According to the Oxford Dictionary, cryptocurrency is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank” [6]. It was coined in early 21st century by combining “crypto” with “currency,” where “crypto” referred to cryptography [6]. Essentially, cryptographic technology was used to create a new form of currency. The first cryptocurrency was Bitcoin.

How Bitcoin works

Satoshi Nakamoto’s Bitcoin white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System” was the original explanation of the Bitcoin concept. Bitcoin is built upon the concept of a chain of digital signatures. It is based upon transactions, timestamp servers, the concept of proof-of-work, network, and incentive [2]. Regarding transactions, the original Bitcoin white paper states that “each owner of the coin transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin” [2]. The timestamp server which is known as the blockchain today, is a method that proves that data was sent at specific time. Each block is connected to another block by a timestamp, thus preserving the order of transactions in a chain and also providing a way to prove that a specific transaction in time was committed. This is the counterintuitive yet elegant solution provided by Bitcoin. Bitcoin treats money completely as a process of trust; there is no actual storage of Bitcoins involved. Every transaction is verified and recorded on a public ledger. This solved a critical problem that bothered engineers for decades: how to make sure that nobody can send duplicated digital money? Within the Bitcoin framework, there is no item to duplicate; you can send as many transactions as you want in parallel, but only one transaction would be verified on the blockchain, and as soon as that transaction is verified, all the duplicate transactions become mathematically false.

The Bitcoin white paper also described the concept of proof-of-work, which can be summed up as utilizing a cryptographic nonce counter to match the number of zero bits prefixing a hash. Once the CPU has put in the effort of matching the cryptographic nonce counter to the zero bits, the transaction has been made permanent and it cannot be modified. To protect from any hacking or transaction tampering “the average work required is exponential in the number of zero bits required and can be verified by executing a single hash” [2]. Bitcoin also introduces a network in which all transactions are broadcasted to all nodes on the network, and “each node collects new transactions into a block” [2]. Each transaction in the bitcoin blockchain is a special transaction that starts a new coin owned by the creator of the block. This ensures that new coins are generated at a constant rate and also provides a way to initially distribute the coins into circulation [2].

The concept of the blockchain is revolutionary, because it decentralizes monetary policy. During my interview with Nick Gogerty, the cofounder of SolarCoin and ElectricChain, he joked that we all are recreational central bankers. He explained that essentially, anyone using a cryptocurrency can influence monetary policy by changing the open source code for the cryptocurrency. As long as other users are willing to accept and verify the coins mined after this particular modification, then the coin would be considered legitimate along with all the coins mined before the change [5]. The power of cryptocurrency is that it decentralizes monetary policy. What was once completely in the domain of secret meetings among top government officials is now completely public domain open discussions. The Chair of the Federal Reserve is considered one of the most powerful people in the world overall and is by far the most important person in the global economy. However, under a cryptocurrency system, no single person has that power. Money policy is determined by direct democracy and people can actually with their money directly [19]. People can choose which fork of the blockchain they choose to mine and trade in. It is this voluntary participation network of transactions that give cryptocurrencies value. Each person can act as a node within this network and the process of verifying transactions demonstrate the value and acceptability of the currency.

History of Bitcoin

Bitcoin was first proposed by Satoshi Nakamoto in 2008 on the Internet cryptography board metzdowd.com [2, 16]. Nobody knows who Satoshi Nakamoto really is. He initially claimed to be a 36-year-old Japanese man wrote made Bitcoin due to being frustrated by the 2007 financial crisis [3]. He wanted to create a currency system that could not be influenced by outside monetary policies, politicians, or corporations [3]. He released the first Bitcoin software and mined the first Bitcoins in January 2009 and collaborated with several other developers until mid-2010, when he transferred control over to Gavin Andresen and several other prominent members of the Bitcoin community [3, 17]. Initially, a Bitcoin was worth less than a penny, and only a few engineers were computer savvy enough to mined them [3]. In the early days, the price of Bitcoins fluctuated wildly, peaking at $29 in June 2011 before crashing down to $5 in September 2011 [3]. The price of Bitcoin had remained volatile, peaking at over $1000 in December 2013, dropping down to $200 by January 2015, then rising back up to $450 by May 2016 [7].

After Nakamoto mysteriously disappeared in 2010, many people theorized about his identity and the reasons why he disappeared. Some speculated that he was actually a team, because no single person can accomplish so much. Others thought that he was actually British, not Japanese, due to the phrases he like to use. Still others thought that he might be Andresen or some other leader in the Bitcoin community [3]. Some suspected that this was a Ponzi scheme, because he could have hoarded the currency then cashed out. However, the general consensus was that he created Bitcoin for political reasons. He wrote about his distrust of government backed fiat currencies. Nakamoto believes that the root problem with conventional currency was trusting the central bank not to debase the currency [3]. Bitcoin made all the transactions based in the cryptographic proof rather than blind trust [2].

There were good reasons for Nakamoto to hide. In 2007, the CEO of e-Gold, a company that sold a digital currency redeemable for gold was sentenced to house arrest [3]. Also in 2007, Bernard von NotHaus was charged with “conspiracy against the United States” for minting his own gold and silver currency [3]. Nakamoto effectively created a currency that competes with the dollar, so he was very wary of potential legal problems. Also, the online black market Silk Road used Bitcoins for transactions before it was shutdown [3]. Bitcoin was able to avoid legal problems because it was anonymous and open source. Nobody had complete control over it and there is no company behind it. Bitcoin was impossible to shut down for the same reason why torrents are hard to shut down completely: it was peer-to-peer rather than regulated by a central organization [3].

Starting in 2013, Bitcoin started to seriously take off. Price rose from $13 at New Year’s 2013 to over $1000 by December 2013 [7]. Many legitimate businesses started to accept bitcoins, including hotels [8]. From 2014 to 2016, more big companies started to accept Bitcoins, including Steam, Microsoft, Dell, and Newegg [9, 10, 11, 12].
Governments are also starting to take cryptocurrency much more seriously. In March 2016, Japan passed a bill that officially recognized Bitcoin and other digital currencies as money [13]. A town in Switzerland now accepts Bitcoins as payment for public services [14]. Rand Paul had accepted Bitcoin donations during this 2016 Presidential Campaign [15]. More governments will likely warm up to cryptocurrencies in the future.

Rise of Other Cryptocurrencies

The digital, public key encryption, open source, and nonprofit properties of Bitcoin made it unlike any other currency or payment system that came before. A copy of the Bitcoin protocol can be forked off and modified to create a new blockchain. This new blockchain is considered a different network and the transactions verified in this new network is not part of the original blockchain. With enough modification, the fork can be rebranded as a new denomination of cryptocurrency. This allows anyone with a computer, Internet, and programming skills to become his own central bank. However, it is important to remember that a currency network with only one node has zero value. Hundreds of alternative cryptocurrencies now exist and the current total market capitalizations is nearly $10 billion [22].

One of the most innovative new cryptocurrencies is Ethereum. One of its many purposes is to broaden the use of blockchain technology beyond use as a currency. The scripting language of Bitcoin was not Turing complete, which can make software development inefficient and limited in possibilities; the scripting language of Ethereum is Turing complete [20]. Another issue is that Bitcoin can only determine if something is spent or unspent. Ethereum allows for multiple states; this make it possible to create multi-stage options contracts, decentralized exchange offers or two-stage cryptographic commitment protocols [20]. Ethereum also makes other changes related to security, speed, and fairness.

Ethereum is not only an alternative cryptocurrency, is also an entire software development platform that allows programmers to create their own currency, law contracts, banking system, private equity platform, and much more. It is possible to generate on-blockchain token systems that represent dollars, rewards points, gold, or stocks [20]. This allows the possibility to create decentralized autonomous organizations (DAOs). This basically means crowd private equity that allows people to vote on company decisions using their tokens [20, 22]. DAOs make it possible for people to experiment with new forms of governance and voting like liquid democracy, holacracy, and futarchy [19]. Arrow’s Impossibility Theorem states that when voters have three or more distinct alternatives (options), no ranked order voting system can be both fair and Pareto efficient. So far, the American representative democracy system works better than many other systems that have been used in history, but it is far from ideal. Liquid democracy is similar to representative democracy, but the delegate is chosen through voluntary association rather than electoral victory, the delegate can opt out, and the voters can override the delegate [19]. Holacracy involves governance through self-assembled teams [19]. Futarchy is making policy decisions through betting markets. Rather than voting to choose among the best policies, votes bet on the magnitude of the expected benefit of each option. Then at the end, the prediction market is used to pick the policy that optimizes aggregate expected benefit [19]. The Ethereum system makes all these new forms of business or organizational structures possible.

The first public DAO, named “The DAO”, went public on May 1st, 2016, and in just over 2 weeks, it has already raised over $150 million [23]. It is the largest crowdfunding campaign in history; Ethereum itself raised $18.4 million [23]. You can only buy into DAO using Ethereum; Ethereum itself was only launched on July 30th, 2015 and already has a market capitalization of over $1 billion [22]. This is a 68-fold increase in under 10 months. Few other projects have grown so rapid to such a large scale. There is a possibly that there is an Ethereum bubble, but it also shows that many people openly welcome the use of cryptocurrencies.

Initially, Bitcoin was seen as an esoteric currency for hackers, but this is no longer true. Coinbase and many other services allows anyone without any technological background to buy and sell Bitcoins using their bank accounts, credit cards, or Paypal accounts. Gyft is a convenient smartphone app that allows people to buy gift cards for over 200 retailers using Bitcoins. Overstock.com and many other online shopping websites now also accept payments in Bitcoin [24]. Bitcoin and other cryptocurrencies are appealing to more and more businesses and consumers. Since they are not inherently restrictive and offer many advantages over traditional currencies and payment systems, the network effects will only make them grow. Because anyone is allowed to make his own cryptocurrency, most of them will be failures. However, the market is efficient at figuring at which few cryptocurrencies are the best ones, and over time the prices of the best currencies will stabilize and they will have the biggest share of the market capitalizations.

The Future of Cryptocurrency

It is unlikely that Bitcoin or any other cryptocurrencies would completely replace fiat currencies in the near future. However, the technology and concepts behind them can change how most people handle money. Already, many people carry credit cards rather than cash, because credit cards are viewed as more liquid, portable, and secure in many situations. Cryptocurrency wallet apps on smartphones can be more liquid, portable, and secure than credit cards. The user base of cryptocurrencies is growing rapidly, so it will only be a matter of time when cryptocurrencies capture a significant portion of the total currency market. More importantly, as Ethereum has demonstrated, the blockchain concept has applications in many other fields and can be used to make life simpler and more secure.

Citations

  1. Davies, G. (1994). A History of Money: From Ancient Times to the Present Day. Cardiff: University of Wales Press.
  2. Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved April 15, 2016, from https://bitcoin.org/bitcoin.pdf
  3. Davis, J. (2011, October 10). The Crypto-Currency. Retrieved May 10, 2016, from http://www.newyorker.com/magazine/2011/10/10/the-crypto-currency
  4. Gogerty, N. (2014). The Nature of Value: How to Invest in the Adaptive Fconomy. Columbia University Press.
  5. Interview with Nick Gogerty about Economics and Cryptocurrencies. [Online interview]. (2016, April 19).
  6. Definition of cryptocurrency in English. (n.d.). Retrieved May 1, 2016, from http://www.oxforddictionaries.com/definition/english/cryptocurrency
  7. Bitcoin Price Index - Real-time Bitcoin Price Charts. (n.d.). Retrieved May 17, 2016, from http://www.coindesk.com/price/
  8. 11 Hotels and Hostels that accept Bitcoin. (2014). Retrieved May 1, 2016, from https://rumorscity.com/2014/01/14/10-hotels-and-hostels-that-accept-bitcoin/
  9. Microsoft Payment Hub: Bitcoin. (n.d.). Retrieved May 1, 2016, from http://commerce.microsoft.com/PaymentHub/Help/Right?helppagename=CSV_BitcoinHowTo.htm
  10. Pressman, A. (2016, April 27). Steam Computer Gaming Network Now Accepting Bitcoin. Retrieved May 1, 2016, from http://fortune.com/2016/04/28/steam-gaming-bitcoin/
  11. We’re Now Accepting Bitcoin on Dell.com. (n.d.). Retrieved May 1, 2016, from www.dell.com/bitcoin
  12. Barajas, I. (2014, December 11). Bitcoin is Going Mainstream in 2015. Retrieved May 1, 2016, from http://blog.newegg.com/bitcoin-is-going-mainstream-in-2015/
  13. Dhaliwal, S. (2016, May 2). Japan Officially Recognizes Bitcoin and Digital Currencies as Money. Retrieved May 19, 2016, from http://cointelegraph.com/news/japan-officially-recognizes-bitcoin-and-digital-currencies-as-money
  14. Valenzuela, J. (2016, May 9). Swiss Town Accepts Bitcoin for Public Services. Retrieved May 9, 2016, from http://cointelegraph.com/news/swiss-town-accepts-bitcoin-for-public-services
  15. Lichtblau, E. (2015, April 09). In Accepting Bitcoin, Rand Paul Raises Money and Questions. Retrieved May 5, 2016, from http://www.nytimes.com/2015/04/10/us/politics/in-accepting-bitcoin-rand-paul-raises-money-and-questions.html?_r=1
  16. Nakamoto, S. (2008, November 1). Bitcoin P2P e-cash paper. Retrieved April 19, 2016, from https://www.mail-archive.com/[email protected]/msg09959.html
  17. Bosker, B. (2013, April 16). Gavin Andresen, Bitcoin Architect: Meet The Man Bringing You Bitcoin (And Getting Paid In It). Retrieved May 1, 2016, from http://www.huffingtonpost.com/2013/04/16/gavin-andresen-bitcoin_n_3093316.html
  18. Kranton, R. (1996, September) Reciprocal exchange: A self-sustaining system. The American Economic Review; 86, 4; ABI/INFORM Global. Pg. 830. Retrieved April 2, 2016, from http://public.econ.duke.edu/~rek8/reciprocalexchange.pdf
  19. Buterin, V. (2014, August 21). An Introduction to Futarchy - Ethereum Blog. Retrieved May 6, 2016, from https://blog.ethereum.org/2014/08/21/introduction-futarchy/
  20. Ethereum White Paper. (2016, April 13). Retrieved May 12, 2016, from https://github.com/ethereum/wiki/wiki/White-Paper
  21. Varshney, N. (2016, February 27). With President Bernie Sanders, Bitcoin Will Thrive. Retrieved May 3, 2016, from http://cointelegraph.com/news/with-president-bernie-sanders-bitcoin-will-thrive
  22. Crypto-Currency Market Capitalizations. (n.d.). Retrieved May 17, 2016, from https://coinmarketcap.com/currencies/views/market-cap-by-total-supply/
  23. The DAO. (n.d.). Retrieved May 17, 2016, from https://daohub.org/
  24. Valenzuela, J. (2016, April 19). A Basic Bitch's Guide to Bitcoin. Retrieved May 9, 2016, from http://cointelegraph.com/news/a-basic-bitchs-guide-to-bitcoin

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Very good paper. You can also edit this as a footnote to say that Steem has proven that a decentralized ecosystem for writing, blogging and a social network is very anti-fragile. It is likely to overtake Facebook, Reddit, Quora in my humble opinion. It is based on a very high level entropy in that it is backed by the blockchain. The flow of people will be naturally attracted to it.

I think Bitshares was marketed as a DAC (DAO) a year or two before ethereum. Nice paper by the way. Very good!

Yeah, I was going to mention a bunch of other projects and other altcoins, but there was a deadline for the paper. So I decided that I will start a blog here and just continue to write as I learn more about various cryptocurrency projects rather than expanding this paper indefinitely. I would like to start some sort of Economics of Cryptocurrencies for Dummies series.

Agreed! IIRC BTS was functional and running as the first DAC/DAO (if we not count BTC to the DAC/DAO family as well) more then 1 year before ETH!
Good work!

Knowledge gained. Thank you.

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