Future of Money Ferdinando M. Ametrano [email protected] https://speakerdeck.com/nando1970 Banca IMI Intesa Sanpaolo, Milano-Bicocca University, QuantLib, Hayek Money Energy and Commodity Markets and Products ESSEC Business School Cergy-Pontoise, May 19, 2015
backed by any government or organization • Instantaneous peer-to-peer transactions • No need for trusted third party • Cryptographic security • Low-cost banking for everybody everywhere https://bitcoin.org/en/faq http://www.coindesk.com/information/ Ferdinando Ametrano 2015 3/120
promise, particularly if the innovations promote a faster, more secure and more efficient payment system. • Alan Greenspan: It’s a bubble. It has to have intrinsic value: you have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can. I do not understand where the backing of Bitcoin is coming from http://qz.com/148399/ben-bernanke-bitcoin-may-hold-long-term-promise/ http://www.bloomberg.com/news/articles/2013-12-04/greenspan-says-bitcoin-a-bubble-without-intrinsic-currency-value Ferdinando Ametrano 2015 4/120
and scary • No transaction costs • No amount limits • No intermediaries • No frozen funds • 24/7, 365 days • Social network enabled • Money for the Information Economy Ferdinando Ametrano 2015 5
– prohibits financial institutions from trading, underwriting, or offering insurance in bitcoins or any other digital currency – Bitcoin is not to be considered a currency – owning bitcoins is not outlawed or prohibited • As of December 2013 BTC China was world's largest Bitcoin exchange by volume • Alibaba, China's top Internet retailer, stopped using bitcoins as of January 19 2014. Ferdinando Ametrano 2015 8/120
Mt Gox was world's largest Bitcoin exchange by volume • In February 2014 it filed for bankruptcy protection from creditors • It announced that around 850,000 bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time • Fraud or theft? Ferdinando Ametrano 2015 9/120
service • online users were able to buy illicit goodies using bitcoins, while browsing it anonymously and securely without potential traffic monitoring • launched in February 2011 • shut down in October 2013 • Ross William Ulbricht, alleged to be the owner of Silk Road arrested in San Francisco • Many other black markets have filled in as successors Ferdinando Ametrano 2015 10/120
Just 6 years old • Without government or corporation backing • That can lose its main (China) market • With fraud/theft at its main reference exchange (Mt Gox) • With such a bad reputation (Silk Road) That could be still alive and kicking? Ferdinando Ametrano 2015 11/120
bitcoins? • Buy bitcoins using USD or EUR at one of many exchanges, e.g. Bitstamp, The Rock Trading, etc. • Use bitcoins to buy: – web services – software – hardware – gambling services – Narcotics, guns, credit card numbers, etc. – Topping the list, in terms of the number of transactions, is tipping and donations Ferdinando Ametrano 2015 13/120
payment – issued by a non-governmental body – without legal privileges • Private monies do not have to be generally acceptable; they merely have to be widely accepted • Public demand for private currencies : – hold them in the expectation that they will not diminish in purchasing power as state money has – conduct illegal activity – wish to be part of a movement against increasing state control of economic and personal behavior – just want better money Ferdinando Ametrano 2015 15/120
silver coins; also issued notes redeemable in precious metals • Periodically revalued against USD: the value of the latter fell over time against precious metals • specifically designed to function in parallel with and in competition to USD • never marketed or represented as official US currency • Highly successful: it became the second most popular currency in the US • Its use declared a federal crime by the US government • Its founders convicted for counterfeiting, fraud and conspiracy against the United States Ferdinando Ametrano 2015 16/120
of account • user accounts backed by gold reserves • By 2005, e-gold had grown to be second only to PayPal in the online payments industry: 1.2M accounts and $1.5B transactions • indicted in April 2007 by US law enforcement services • Charges: unlicensed money-transmitting entity and a means of moving the proceeds of illegal activities • Never proven and even the judge expressed major doubts • ‘offshore’ payment system rather than a money transmitter or bank as defined under then-existing regulations, not least because gold was not legally ‘money’ Ferdinando Ametrano 2015 17/120
digitally has been possible for decades • However it had always required the creation of a centralized trusted party to prevent double spending • Bitcoin – does not require a central trusted party – is designed to resist attacks of malicious agents, as long as they do not control network majority Ferdinando Ametrano 2015 18/120
P2P e-cash paper Newsgroups: gmane.comp.encryption.general Date: 2008-10-31 18:10:00 GMT I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party. The paper is available at: http://www.bitcoin.org/bitcoin.pdf The main properties: Double-spending is prevented with a peer-to-peer network. No mint or other trusted parties. Participants can be anonymous. New coins are made from Hashcash style proof-of-work. The proof-of-work for new coin generation also powers the network to prevent double-spending. Bitcoin: A Peer-to-Peer Electronic Cash System Abstract. A purely peer-to-peer version of electronic cash […] Satoshi Nakamoto --------------------------------------- The Cryptography Mailing List Ferdinando Ametrano 2015 20/120
• Worked on Bitcoin since probably 2007 • Published the paper in 2008 • Released the code in January 2009 • Stopped involvement mid-2010 • Entrusted the project and a copy of the alert key to Gavin Andresen, effectively his successor • He owns about 1M bitcoins, never spent Ferdinando Ametrano 2015 21/120
solution to political problems in cryptography,] but we can win a major battle in the arms race and gain a new territory of freedom for several years. Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own." • "[Bitcoin is] very attractive to the libertarian viewpoint if we can explain it properly. I'm better with code than with words though." • In the Bitcoin's transaction database, the first entry has a note by Nakamoto: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" Ferdinando Ametrano 2015 22/120
so it is: • open source; cryptographic software’s source code must be available to allows public inspection (absence of backdoor and security vulnerabilities) • free software; the user the right to use, copy, modify, and redistribute the software Instead, proprietary software is often close source and it only grants the right to use Ferdinando Ametrano 2015 23/120
blockchain technology) and the community • bitcoins: units of the currency bitcoins are sent using Bitcoin • bitcoins are the first powerful protocol application: a digital property created inside the Bitcoin protocol Ferdinando Ametrano 2015 24/120
• shared with peer-to-peer technology • allows to transfer a unique digital token • the token can be exchanged, but not duplicated • keeps records of each and every transaction forever It can replace any processing central authority with decentralized peer-to-peer cryptographically secure equivalent Ferdinando Ametrano 2015 25/120
exchanged using smart contracts • Smart contracts: math-based contracts with automated software settlement, with no legal systems or human actions required • Autonomous agents: software programs created for specific tasks, able to make and receive payments using Bitcoin • Decentralized Autonomous Organizations (DAO) Ferdinando Ametrano 2015 26/120
managing physical securities, [this technology holds the potential to] benefit not only our clients, but the broader global capital markets NASDAQ Chief Executive Robert Greifeld • Pilot project: NASDAQ Private Market (pre-IPO trading among private companies) • Bitcoin technology replaces the informal systems used for sales and transfers of shares Ferdinando Ametrano 2015 27/120
• Put a hash value in the «comment» section of a (monetarily negligible) transaction • Hash being a fixed length string that uniquely identify an arbitrary length digital object (e.g. a txt or pdf file) • Existence of that digital object at the transaction time is proved on the block chain www.proofofexistence.com Ferdinando Ametrano 2015 29/120
only exist as public ledger documented transactions • A bitcoin wallet is a public address 1FEz167JCVgBvhJBahpzmrsTNewhiwgWVG • the public ledger certifies for everybody how many bitcoins are associated to the wallet http://blockexplorer.com/address/1FEz167JCVgBvhJBahpzmrsTNewhiwgWVG It is mine; you are REALLY encouraged to tip Ferdinando Ametrano 2015 30/120
signature functions: – private (secret) key used to generate the signature – public key used by anyone to verify the signature • The bitcoin wallet address is the public key • The private key allows spending from the wallet Try at https://www.bitaddress.org Ferdinando Ametrano 2015 31/120
Transaction: amount + receiver’s public key • The sender’s private key signs the transaction • With sender’s public key anyone can verify that: – The private key has been used, non-forged signature – Transaction has not been tampered or modified – The amount is at sender’s public key disposal • The transaction is published to the public ledger • Everybody knows that the receiver’s public key has received the transacted amount Ferdinando Ametrano 2015 32/120
public key does not provide direct information about the private key owner • All transactions are transparent to everybody’s inspection. • Perfect persistent public account history: the public ledger is forever • Tool little privacy for honest people, too much for criminals https://blockchain.info/ http://blockexplorer.com/ Ferdinando Ametrano 2015 34/120
in blocks, sequentially chained, about one block every 10 minutes • The block chain is a history of transactions resilient to network attackers • The cryptographic link between blocks requires (large amount of) computing power, setting the level of effort required to alter the block chain • As of 2015 the network computing power is 13,000 times that of the combined 500 largest supercomputers Ferdinando Ametrano 2015 35/120
the computing power for: – processing and validating transactions (avoiding double spending) – securing the network – synchronizing the nodes • Miners compete to process a new block of transactions. The winner provides a proof-of-work and is rewarded with the issue of new bitcoins. • Seigniorage revenues subsidize the network, making transaction almost free Ferdinando Ametrano 2015 37/120
halving every 4Y • This is the only way new bitcoins are released • It is called mining because of its similarity with the progressive scarcity of gold extraction • digital cash supply free of discretionary intervention Ferdinando Ametrano 2015 38/120
are traitors amongst them • Decide unanimously whether to attack • Success (i.e. fault tolerance) is achieved if the loyal generals can agree on their strategy, whatever it might be Ferdinando Ametrano 2015 41/120
length to data of a fixed length (called the hash value) in a non-invertible way • Bitcoin uses the (Secure Hash Algorithm) SHA- 256 algorithm that generates a fixed size 256- bit (32-byte) output Ferdinando Ametrano 2015 42/120
proof-of-work based on SHA-256 hashing. Find a nonce for a given block such that: SHA-256(previous block hash, transactions, nonce) <= target • The longer chain (actually the one with higher difficulty) is the consensus Ferdinando Ametrano 2015 44/120
for a specific purpose. • Introduced in 2013 for Bitcoin mining • Less power consumption, higher hashing power. Outpaced CPU and GPU mining • $8M a Month Miner: Dave Carlson http://www.coindesk.com/inside-north-americas-8m-bitcoin-mining-operation Ferdinando Ametrano 2015 46/120
of transaction inputs (TxIn) and a list of transaction outputs (TxOut) • A TxOut holds two pieces of data: an amount, and the recipient (public key) address: only the private key can unlock the amount, signing a transaction to a new address • A TxIn holds a reference to a previous TxOut, and the signature that proves that the funds in the TxOut it references can be spent Ferdinando Ametrano 2015 49/120
the TxIns must be greater than or equal to the sum of the amounts of the TxOuts. • Residual difference between TxIns and TxOuts, if any, is a fee collected by the miner • TxOuts can be spent only once and fully: if the TxOuts amount is greater than the amount to be spent, a TxIn change must be sent to a change address Ferdinando Ametrano 2015 50/120
to record funds available for every address • UTXO is a cache for the block chain, updated by new transactions • UTXO is similar to the central databases used by many centralized systems Ferdinando Ametrano 2015 52/120
that must be solved in order to spend the output • TxIn contains the puzzle solution <scriptSig> • The protocol concatenates the <scriptSig> with the <scriptPubKey> and runs the whole script. If the final result evaluates to true, then the input is considered valid Ferdinando Ametrano 2015 53/120
September 2014 • Sridhar Ramaswamy, head of Google Wallet We are working in the payments team to figure out how to incorporate bitcoin into our plans • Amazon: granted patent for the use of digital currencies as payment on cloud platforms (Amazon Web Services) Ferdinando Ametrano 2015 57/120
only change the way we do payments but it will change the whole trading and settlement topic. It has potential to trigger “massive” simplification of banking processes and cost structure. When somebody with a strong brand and security level establishes it as a reliable service, then the whole industry will follow. Oliver Bussmann, CIO of Swiss bank UBS http://blogs.wsj.com/digits/2014/10/27/ubs-cio-blockchain-technology-can-massively-simplify-banking/ Major banks like JPMorgan Chase, Citibank and Bank of America have established teams of experts focusing exclusively on digital currency Edmund Moy, former director of the United States Mint http://www.coindesk.com/former-us-mint-director-save-bitcoin-regulators Ferdinando Ametrano 2015 59/120
exchange of any form of money or value, even EUR or USD, not just crypto-assets • Banks can offer their customers instant international money transfers, and offer international settlement services to other banks https://ripple.com/ Ferdinando Ametrano 2015 60/120
banking experience at a fraction of the time and cost Matthias Kröner, CEO • With Kraken (a California-based exchange) Fidor is launching a banking platform for crypto-currencies https://ripple.com/blog/fidor-bank-ag-the-first-bank-to-use-the-ripple-protocol/ https://www.cryptocurrency-bank.com/ Ferdinando Ametrano 2015 61/120
Merrill Lynch and UBS • partnership with Nasdaq to power a Bitcoin Marketplace with X-stream Trading Technology • We are thrilled to work with the experienced industry veterans at Noble Markets and look forward to supporting their cutting-edge, new endeavor for the long term in addressing the needs of the digital currency space Lars Ottersgård, Nasdaq’s executive VP of market technology http://www.nasdaq.com/press-release/nasdaq-to-power-digital-currency-marketplace-for-noble-markets-20150324-00118 https://youtu.be/LCVqfpTSqug Ferdinando Ametrano 2015 63/120
merchant payment processor • $75m record-setting funding round in January 2015: to date it has raised $106m • A host of notable investors: – BBVA – New York Stock Exchange – DoCoMo (Japanese telco giant) – former Citigroup CEO Vikram Pandit – former Thomson Reuters CEO Tom Glocer http://www.coindesk.com/coinbases-75-million-series-c/ Ferdinando Ametrano 2015 65/120
– China-based IDG Capital Partners – Breyer Capital, General Catalyst, Accel • invest in companies that have the promise to transform global markets through technical innovation Tom Jessop, MD Goldman Sachs’ Principal Strategic Investments Group • hybrid fiat-digital currency model • benefits of digital currency even for USD http://www.wsj.com/articles/goldman-a-lead-investor-in-funding-round-for-bitcoin-startup-circle-1430363042 Ferdinando Ametrano 2015 66/120
in Series A fundraising • It has received a trust company charter from the New York State Department of Financial Services (NYDFS) • Customer funds denominated in US dollars will be held in FDIC-insured accounts Ferdinando Ametrano 2015 67/120
Banking Committee): – Bitcoin is a payment innovation that's taking place outside the banking industry – It's not so easy to regulate Bitcoin because there's no central issuer or network operator. This is a decentralized, global [entity] • ECB (October 2012 report): – governments and central banks would face serious difficulties if they tried to control or ban any virtual currency scheme – there is no server that could be shut down if the authorities deemed it necessary http://blogs.wsj.com/moneybeat/2014/02/27/yellen-on-bitcoin-fed-doesnt-have-authority-to-regulate-it-in-any-way/ http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf Ferdinando Ametrano 2015 69/120
creation of governing authorities accountable for protocol and transaction ledger integrity • Until a comprehensive regulatory regime is developed: – recommends that national supervisory authorities(*) discourage [financial] institutions from buying, holding, or selling virtual currencies – allows financial institutions to maintain current account relationship with businesses active in the field of virtual currencies http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf (*) http://www.bancaditalia.it/pubblicazioni/bollettino-vigilanza/2015-01/20150130_II15.pdf http://uif.bancaditalia.it/normativa/norm-indicatori-anomalia/Comunicazione_UIF_su_VV.pdf Ferdinando Ametrano 2015 70/120
far) US Marshall BTC auction • NYDFS BitLicense Regulatory Framework, widely regarded as possible framework for other jurisdictions • Benjamin M. Lawsky: The challenge we face is to come up with appropriate guardrails that: – safeguard customer assets; – protect consumers from fraud and abuse; – root out money laundering and other illicit activities; – defend against hackers by emphasizing robust cyber security not stifling beneficial innovation in a fledgling industry. In an age of heightened consumer expectations for real-time, digital payments, if banks fail to innovate, they could face a real challenge Ferdinando Ametrano 2015 71/120
that it is possible to transfer value securely without a trusted third party. The distributed ledger technology may have considerable promise. • BoE: Digital currencies, combined with mobile technology, may reshape the mechanisms for secure payments • Government: is committed to increasing banking competition encouraging the creation of a world-leading environment for innovative payments and financial technology • Government: is launching a research initiative for digital currency technology funded with £10m • BBA: banks must accept they are part of the broader ecosystems customers are constructing around themselves. However, their place in these ecosystems is far from secure Ferdinando Ametrano 2015 72/120
into a gift economy • Enlarged relationship circle requires exchange economy • Barter economy, coincidence of wants • Trade economy, money as medium of exchange • Bitcoin is money for the information economy Ferdinando Ametrano 2015 74/120
coinage is an almost uninterrupted story of debasements; history is largely a history of inflation engineered by governments for their gain • why government monopoly of the provision of money is regarded as indispensable? It deprived public of the opportunity to discover and use a better reliable money Blessed will be the day when it will no longer be from the benevolence of the government that we expect good money but from the regard of the banks for their own interest A Free-Market Monetary System, Gold and Monetary Conference, New Orleans, Nov. 1977, https://mises.org/daily/3204 Hayek, F. A., Denationalisation of Money, The Institute of Economic Affairs, http://www.mises.org/books/denationalisation.pdf Ferdinando Ametrano 2015 75/120
reserve assets, created in 1969 to supplement existing official reserves of member countries • SDRs address the lack of a non-national currency to be used as reserve asset • F. Saccomanni: cryptocurrencies could be an effective monetary policy instruments [...] we should pay more attention to the geniuses working on them, try to understand what of interest they could teach us https://it.finance.yahoo.com/notizie/saccomanni-non-bisogna-demonizzare-cripto-valute-172912255.html http://www.ufficiostampa.rai.it/pdf/2014/2014-10-09/2014100928490498.pdf Ferdinando Ametrano 2015 76/120
money standard – resistance to corrosion and oxidation – high malleability – relative easiness of purity assessment – Pleasant color • Gold purity certification • Representative money • Fractional receipt money • Money and currency • Fiat money and legal tender Ferdinando Ametrano 2015 77/120
Account Live cattle Diamonds Gold Fiat coins and notes Bitcoin • swappable • fungible • portable • divisible • recognizable • resistant to counterfeiting • reliably saved, stored, and retrieved • retain usefulness over time • non-perishable or with low preservation cost • relative worth unit of measure • stable value for stable price comparison • supply must be controlled in some way Ferdinando Ametrano 2015 78/120
unit of account against which the value of every other good is measured • The price system measures the value of goods relative to the value of money Good money should provide stable prices to best perform its role as unit of account Ferdinando Ametrano 2015 79/120
of a centralized monetary authority • has given up the flexibility of an elastic supply of money • No salaries, no mortgages Ferdinando Ametrano 2015 80/45
100BTC received a week ago and he spend them, then 700 bitcoin days have been destroyed. If he takes those 100BTC and send them multiple times to several addresses back and forth, then finally spend them, although the total transaction volume would be larger than 100BTC the number of bitcoin days destroyed is still 700 Ferdinando Ametrano 2015 82/120
by supply and demand, as for any other good • Changes in bitcoin demand cannot be compensates by elastic supply: they directly translate in price changes and price volatility • Bitcoin speculative appeal leads to hoarding and limited transaction volume • Expectations about its future usage foster price growth but stand in the way of current usage! Ferdinando Ametrano 2015 83/120
policy: most are denied of the pro-quota monetary base increase they would deserve as current money holders • Contractionary policy: the general loss of value is dumped on borrowers increasing interest rates • Paper money phasing out (2014 Rogoff) Ferdinando Ametrano 2015 84/120
get rid of any centralized monetary authority • The bitcoin currency has given up the flexibility of an elastic supply of money • Hayek Money is a price stability paradigm: the cryptocurrency monetary standard of elastic non-discretionary supply Ferdinando Ametrano 2015 87/120
• x500 increase for BTC demand relative to USD • 29-March-14: 12.5M bitcoins in circulation • Inflate their number 500 times to 6250M • On 29-Mar-14 it would have been equivalent – to own BTC1 worth $500 – or (rebased) RBTC500 each worth $1 Ferdinando Ametrano 2015 88/120
proper monetary policy befitting user needs – selected commodity basket standard relevant in the reference economy. • To keep reserve is not needed or advocated • Two Hayek Money crypto-families: 1. Gold, the most brilliant protagonist of the history of money. Maybe Silver. 2. Mix of petrols, grains, and industrial metals Ferdinando Ametrano 2015 97/120
are the agents of the transaction history consensus algorithm • Miners can also be the agents of the reference price consensus algorithm • Shelling points: unbiased market prices are focal prices for the average consensus process • Miners as (black market) brokers Ferdinando Ametrano 2015 98/120
relative price stability and sensitivity, and competitive markets might suggest Commodity PI alterations • The Commodity PI is composed of technically unconstrained numbers • Nothing could stop the majority of miners from changing the Commodity PI definition • Proof-of-stake is crucial: the prerogative to change the PI is not oligopolistic power abuse, but the proper right of the majority to rule about its own money Ferdinando Ametrano 2015 99/120
The number of coins in a wallet changes without any direct inflows or outflows • Prices are stable (salaries and mortgages are now possible!), but the purchasing power of a given wallet is not stable • Coins still have speculative investment appeal and so enjoy limited transaction usage Ferdinando Ametrano 2015 100/45
and respectively • Overall outstanding monetary base = Coin + Share market capitalizations: = ∙ + ∙ • If ≅ 0 and ≅ 0: cryptocurrency is dead • If ≅ 0 and > 0: no interest for stable coins, shares are the equivalent of bitcoins • So > 0, but really ≅ 1 is the goal Ferdinando Ametrano 2015 103/45
to a given price index parity – Expansionary monetary phases: coins are minted as share dividends paid to shareholders – Contractionary monetary phases: coins can be destroyed in exchange for newly minted shares or other crypto-assets • When ≅ 1, coins give up any speculative value • Money velocity and transaction volume increase • Transaction validation is rewarded with the issuance of new shares, not coins Ferdinando Ametrano 2015 104/45
currency issuer, especially the difference between the face value of coins and notes and their production costs Miners are replaced by shareholders entitled to seigniorage revenues as compensation for being: – obliged to validation task duties – responsible for network security, node synchronization, etc. – subjected to the costs associated to coin stability Ferdinando Ametrano 2015 105/45
future coin issuance: assuming zero interest rate ∙ is the expected number of future coins • The share price is free to float: – increases for dividend expectations in expansionary monetary phases – decreases in contractionary phases • Shareholders absorb all monetary policy’s costs and benefits, shielding coin holders from volatility • Shares are never burned/destroyed Ferdinando Ametrano 2015 106/45
minted and paid as share dividends to shareholders 2. For a given transactional coin demand satisfied by market capitalization ∙ , an increasing number of coins pushes down to parity • If > 1 then > 0 because coins are expected to be paid as dividend to shareholders Ferdinando Ametrano 2015 107/45
on short-term: decreases 2. decrease implies that less coins are expected to be minted in the future, so is pulled up to parity proportionally to the ∙ share market capitalization loss 3. Coins can also be voluntarily burned in exchange for newly minted shares or other crypto-assets Ferdinando Ametrano 2015 108/45
> 0: coin price parity might be restored by share intrinsic devaluation or coin burning 2. < 1 and ≅ 0: shares’ defensive help is exhausted, price stability could be preserved only burning coins but shares are not attractive Ferdinando Ametrano 2015 109/45
share dividends and coin burning might be not effective enough • A Reserve Bank (as Decentralized Autonomous Organization) can enforce price boundaries: – Always selling newly minted coins for 1.05, accepting crypto-assets (to be accumulated as reserve) in return – Always buying existing coins at 0.95 giving new shares or accumulated reserve crypto-assets in return • A custodian legal entity would be required for non-crypto reserve assets re-introducing centralization Ferdinando Ametrano 2015 110/45
and most successful instance of an intrinsically scarce digital asset: it digital gold • When used as reserve asset, its qualities are magnified! • Its limits are lessened. No more need to: – scale to huge (cash + bank accounts + credit cards) number of transactions – support economically inefficient micropayments – lower confirmation time • The Reserve Bank IPO: raise bitcoins, issue seigniorage share Ferdinando Ametrano 2015 111/45
• For centuries gold has been the most successful form of money • Its adoption was not centrally planned • It has been surpassed by other kind of money without becoming obsolete Bitcoin • Bitcoin is the most successful form of cryptocurrency • Its adoption has not been centrally planned • It might be surpassed by more advanced type of cryptocurrencies without becoming obsolete Ferdinando Ametrano 2015 112/34
proportional to shareholding (proof-of-stake) • Instead of wasting hardware and electric power in proof-of-work, shareholders pay bitcoins to the Reserve Bank (proof-of-payment) augmenting its reserves • Transaction validation rights are randomly assigned between shareholders, with chances proportional to the accumulated proof-of- payment amount • Share price in bitcoin is obtained as by-product Ferdinando Ametrano 2015 113/45
Solution, http://ssrn.com/abstract=2425270 • Morini M., Inv/Sav Wallets and the Role of Financial Intermediaries in a Digital Currency, http://ssrn.com/abstract=2458890 • Ametrano F., Cryptocurrency Price Stability With Seigniorage Shares And Reserve Bank, http://ssrn.com/abstract=2508296 • Buterin V. https://blog.ethereum.org/2014/11/11/search-stable- cryptocurrency/ • Sams R., A Note on Cryptocurrency Stabilisation: Seigniorage Shares, https://github.com/rmsams/stablecoins/blob/master/00- main.pdf Ferdinando Ametrano 2015 117/120
in replacing central authorities The challenge today is to imagine what could be the forthcoming blockchain equivalent of Apple, Google, Amazon, or Facebook • History of Money: the eve of possibly the best money ever devised in human history Payment systems and exchanges will never be the same Ferdinando Ametrano 2015 118/120
price stability paradigm of elastic non-discretionary money supply 2. Coin/share dual asset ledger to decouple transactional and speculative money demand 3. Bitcoin as reserve asset for a DeCentralized Reserve Bank (DAO) that performs market operations 4. Proof-of-Payment to avoid socially inefficient usage of seigniorage revenues for transaction verification Ferdinando Ametrano 2015 119/120
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