Casting Light on Central Bank Digital Currency

Several central banks have begun actively investigating the possibility of issuing central bank digital currency (CBDC). This new central bank liability would be a widely accessible digital form of fiat money, intended as legal tender. This chapter aims to answer a simple question: Does CBDC offer benefits? On the demand side, would it satisfy end user needs better than other forms of money? And on the supply side, would issuing CBDC allow central banks to more effectively satisfy public policy goals, including financial inclusion, operational efficiency, financial stability, monetary policy effectiveness, and financial integrity? In short, is CBDC a desirable form of money given existing and rapidly evolving alternatives? The chapter includes a summary of pilot projects and studies from central banks exploring the possibility of issuing CBDC. The analysis is based on publicly issued materials and discussions with staff members at central banks and technology providers around the world.

Blockchain and Identity Persistence

Blockchain technologies are being touted as a way to protect individual privacy. Blockchain app developers and theorists, often out of a genuine desire to protect people and their privacy, have devoted considerable efforts to devising ways that the blockchain can be used to verify aspects of a static digital identity. However, these notions of a static, single, and accurate digital identity ignore the reality of how people's identities work, and especially the plural, time-varying, and fictionalizing elements of personal identity. This chapter charts out ways that people’s multiple identities may be affected and undermined by the development of public and unmodifiable ledgers of transactions and contractual undertakings. Following on from this discussion, the chapter applies a clearer model of identity to the blockchain use-cases of marriage, money laundering, and criminal justice records, and draws conclusions for regulators, blockchain applications developers, and the general public.

The Law and Finance of Initial Coin Offerings

This chapter analyzes the legal and financial aspects of Initial Coin Offerings (ICOs). Section I examines the concept, features, and structure of an ICO. Section II analyzes the different regulatory approaches to deal with ICOs. Section III provides an overview of some of the accounting and financial challenges ICOs generate. Section VI focuses on the corporate governance aspects of ICOs. Section V analyzes how ICOs may raise issues related to money laundering, and how regulators and policymakers can deal with these problems. Section VI provides an overview of the challenges of ICOs from the perspective of privacy law and data protection. Section VII examines how insolvency may affect the issuer and buyer of tokens, and how insolvency jurisdictions should deal with those issues arising in insolvency proceedings involving cryptoassets. Finally, Section VIII discusses the jurisdictional issues arising in ICOs.

Toward a Stable Tokenized Medium of Exchange

This chapter discusses the current state of the crypto land and argues that stable crypto tokens, which can be viewed as an electronic analogue of cash, can help augment the existing TCP/IP (Transition Control Protocal/Internet Protocol) with a much-needed mechanism in order to bring existing banking and payment systems into the twenty-first century. It describes three existing approaches to designing such tokens—fiat collateralization, cryptocurrency collateralization, and dynamic stabilization—and concludes that only regulatorily compliant fiat-backed tokens are viable in the long run. It also discusses asset-backed cryptocurrencies and argues that in some instances they can provide a much-needed counterpoint for today's fiat currencies, and pave a way forward toward ensuring world-wide financial stability and inclusion.

Cryptoasset Valuation

This chapter reviews practitioner and academic work on the topic of cryptoasset valuation, introduces a value-driven taxonomy of cryptoassets, and investigates several assets directly to demonstrate how they might be valued. The ease of creating a token and an upswing of global retail enthusiasm inaugurated a token sale boom in 2017 that eclipsed venture funding for start-ups within the industry. A maturing data environment and the innate transparency of blockchains has led to more sophistication in the analysis of these economic systems; but widely agreed-upon valuation methodologies still do not exist. It has been suggested that cryptoassets such as bitcoin cannot be valued, only priced. Practitioners would do well to cross the aisle and work with their academic counterparts on deriving meaningful models for these assets; equally, academia should continue to grant cryptoassets the attention they deserve.

Introduction

Cryptoassets are an increasingly high profile and at times controversial asset class of financial products aiming to transform how money is transferred, capital is raised, and financial relationships and obligations are memorialized. This book attempts to demystify these new digital instruments through a series of varying and often interdisciplinary investigations, across economics, law, and the social sciences. Contributors include many of the leading experts in the field, with expertise as technologists, academics central bankers, market regulators and attorneys. In tapping this breadth of views and backgrounds, this book seeks to provide cutting-edge analysis and understanding of cryptoassets—and cryptoasset regulatory policy—for generalists and experts alike.

Cryptocurrencies and the Evolution of Banking, Money, and Payments

This chapter discusses cryptocurrencies in the context of a historical overview of the evolution of money, banking, and the payment system. The chapter is organized as follows. Section I introduces the topic. Section II addresses money, payment, and payment intermediation. Section III sets out the evolution of commercial banking to facilitate national and global networks for book-based payments. Section IV addresses both electronic banking as a form of payment intermediation and the availability to the public of central bank balances as a challenge to payment intermediation. Section V examines the challenge cryptocurrencies present to state-issued currency, payment intermediation, and the roles of banks in the payment systems. The conclusion points at an irony: even as a challenge to banking, cryptocurrencies emerged as an outgrowth of an enhancement to banking.

What Should Be Disclosed in an Initial Coin Offering?

This chapter unsettles the all-too-common assumption that existing Securities Act registration and disclosure requirements offer adequate remedies for the increasingly obvious shortcomings of initial coin offerings (ICOs). It argues that, as currently constituted, the Securities Act and its accompanying regulations offer, at best, only a partial remedy to the disclosure challenges that ICOs pose. Even if subject to the full panoply of disclosures operative in public offerings, ICO promoters would not necessarily disclose all factors material to evaluating and pricing their tokens. Furthermore, even where disclosures are made, they may not be done in ways that investors can easily understand, and technical disclosures would not be subject to the kind of financial statement audits common in more traditional securities offerings.

Policy and Regulatory Challenges of Distributed Ledger Technology and Digital Assets in Asia

Since the launch of Bitcoin in 2009, cryptocurrencies and their underlying blockchain technology have risen to global attention. It is now clear Bitcoin and a number of other cryptocurrencies were the focus of one of the largest speculative bubbles in history. This chapter explores blockchain, cryptocurrencies and Initial Coin Offerings (ICOs), as well as policy and regulatory responses in Asia. It demystifies key aspects of blockchain systems, while also disentangling concepts that are often (incorrectly) used interchangeably, such as distributed ledgers and blockchains. The chapter provides data on total capital raised through ICOs and analyzes the distribution of ICOs by country and region. Based on this framework, it conducts a comprehensive analysis of regulatory statements and disparate policy approaches in Asian countries toward digital assets, focusing on cryptocurrencies, blockchain, and ICOs.

Difficulties in Achieving Neutrality and Other Challenges in Taxing Cryptoassets

The recent volatility in cryptoassets prices—booming to almost USD 800 billion in estimated market capitalization early 2018 only to collapse to about a quarter of that value by the time of writing—has generated strong interest from governments and tax administrations in considering the appropriate tax treatment of transactions in, and relevant gains derived by taxpayers from the acquisition and disposal of, cryptoassets. This chapter provides an overview of the main challenges and key considerations for tax law policymakers wishing to design or benchmark their tax law framework for cryptoassets. It is organized as follows: The second section discusses the classification challenges that tax law policymakers and tax administrations typically face in relation to cryptoassets. The third section proceeds to discuss some of the key tax law considerations when considering basic forms of activities and transactions with respect to cryptoasset. The fourth section draws some preliminary conclusions.