Distributed Public Ledger Revolution & the Future of Money

Presented at the Hogan Lovells roundtable "Bitcoin: quale futuro per la moneta virtuale?"

Transcript

1. Distributed Public Ledger Revolution & the Future of Money Ferdinando M. Ametrano ferdinando@ametrano.net University of Milan-Bicocca, Banca IMI, Hayek Money, QuantLib Hogan Lovells, Rome/Milan, September 30th 2014 This presentation: http://goo.gl/ytFvrw
2. What have been said • Ben Bernanke: long-term promise • Jared Cohen: crypto-currencies are inevitable • Marc Andreessen: like Internet in 1994 • Nouriel Roubini: Ponzi game and conduit for criminal/illegal activities • Alan Greenspan: It’s a bubble. It has to have intrinsic value Ferdinando M. Ametrano 2014 2/22
3. What are bitcoins? https://bitcoin.org/en/ • Decentralized digital currency • Not 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 M. Ametrano 2014 3/22
4. Bitcoin Economy • Total number of BTC is about 13M • Market Cap: $8B BTC vs $1,200B USD http://bitcoincharts.com/charts/bitstampUSD#tgWzm1g10zm2g25zv Ferdinando M. Ametrano 2014 4/22
5. Bitcoin Price Growth & Adoption Coindesk, State of Bitcoin Q2 2014 http://www.coindesk.com/state-of-bitcoin-q2-2014-report-expanding-bitcoin-economy/ Ferdinando M. Ametrano 2014 5/22
6. Merchants & Payment Processors • John Donahoe, president and CEO of eBay Inc: There’s no doubt digital currency is going to play an important role going forward: at PayPal, we’re going to have to integrate them into our wallet • 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 M. Ametrano 2014 6/22
7. Bitcoin: a currency and a protocol • Bitcoin: protocol, software, and community • bitcoins: units of the currency. bitcoins are sent using Bitcoin Ferdinando M. Ametrano 2014 7/22
8. Bitcoin the protocol Distributed public ledger of transactions: • allows to transfer a unique digital token • keeps records of each and every transaction forever It can replace any processing central authority with a decentralized peer-to-peer cryptographically secure equivalent Ferdinando M. Ametrano 2014 8/22
9. No central authorities: examples digital tokens for: • Car ownership (car sharing) • Voting rights (liquid democracy) Distributed Autonomous Organizations: • Gambling online (no fees, no taxes) • Health insurance (without company costs) Ferdinando M. Ametrano 2014 9/22
10. bitcoin the currency • bitcoins are a digital property • created inside the Bitcoin protocol • the first powerful protocol application • authorities replaced: – central banks – financial intermediaries Ferdinando M. Ametrano 2014 10/22
11. Hard to regulate • Janet Yellen (november 2013 US Senate): – 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 Ferdinando M. Ametrano 2014 11/22
12. US Landscape • July 1st: US Marshall auction: 30000BTC for north of USD 19M • July 17th: New York Department of Financial Services has released BitLicense draft: New York-sanctioned Bitcoin service users will no longer be anonymous Ferdinando M. Ametrano 2014 12/22
13. Bitcoin Lookouts 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 M. Ametrano 2014 13/22
14. EU Landscape: 4° of July EBA opinion • EBA endorses the creation of governing authorities accountable for protocol and transaction ledger integrity • Until a comprehensive regulatory regime is developed: – discourage financial institutions from buying, selling, or holding virtual currencies – allow financial institutions to maintain current account relationship with businesses active in the field of virtual currencies Ferdinando M. Ametrano 2014 14/22
15. Money as social relation instrument • Human beings are born into a gift economy • As the relationship circle is enlarged, the need for an exchange economy arises • barter economy, coincidence of wants • Trade economy based on money as medium of exchange • Cryptocurrency: money for the global economy of mobile communication, Internet, and social networks Ferdinando M. Ametrano 2014 15/22
16. Money Comparison Medium of Exchange Store of Value Unit of Account Live cattle Diamonds Gold Fiat coins and notes Cryptocurrency • 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 limited in some way Ferdinando M. Ametrano 2014 16/22
17. Money as value yardstick • Unit against which the value of every other good is measured • A good in itself: its value is governed by supply and demand • 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 M. Ametrano 2014 17/22
18. Inelastic Money Supply Ferdinando M. Ametrano 2014 18/22
19. Statement of the Problem • The Bitcoin protocol has been successful at get rid of any centralized monetary authority • The bitcoin currency has inadvertently thrown away the flexibility of an elastic monetary policy Ferdinando M. Ametrano 2014 19/22
20. Estimated USD Transaction Volume Ferdinando M. Ametrano 2014 20/22
21. The Holy Grail of Stable Prices • Gold standard, bimetallism, symmetallism • Fixed value of bullion (Aneurin Williams 1892) • Compensated dollar (1911-20 Irving Fisher) • Commodity Reserve Currency (1932 J. Goudriaan, 1937-44 B. Graham, 1942 F. Graham, 1951 M. Friedman) • ANCAP basket (1982 Robert Hall) • Futures contracts (1984 Miles, 1989-95 Sumner) • Quasi-futures contract (1994 Kevin Dowd) • Price index option (2000 Kevin Dowd) Ferdinando M. Ametrano 2014 21/22
22. Hayek Money The cryptocurrency monetary standard of elastic fully automatic non-discretionary supply regulated to achieve stable prices with respect to a (commodity) price index Working paper: ssrn.com/abstract=2425270 Forthcoming website: www.hayekmoney.com Ferdinando M. Ametrano 2014 22/22