Beyond Bitcoin: Economics of Digital Currencies and Blockchain Technologies

Description

Over the last few years, we have witnessed an upsurge of enthusiasm about cryptocurrencies and, more generally, the so-called blockchain technology. In this new and updated edition, the authors explore what exactly these new technologies entail and promise. They argue that to understand the potential challenges and further developments in the market, one needs to develop an understanding of what needs these innovations fulfill and what business models are consistent with their use. For that, we need to sufficiently understand both the technology and how it affects the economic forces at play. This book goes beyond the headlines that say “blockchain will decentralize everything” and provides in-depth, rigorous analysis of what can be effectively decentralized and how this decentralization will work. The book draws not only on the general knowledge of digital currencies and blockchain technologies, but also on recent academic research on the topic. Featuring a fully updated chapter on cryptocurrencies and new chapters on smart contracts and enterprise blockchains, this book is critical reading for those interested in how technology developments impact business and society. Preface Acknowledgements Contents List of Tables 1 Introduction 2 Means of Exchange: Ever-Present Competition 2.1 The Medium of Exchange—Historical Overview 2.2 What Roles Does Money Serve? 2.3 Competing Money 2.3.1 Coexistence Is Costly 2.3.2 Network Effects 2.3.3 The Difficulty of Introducing a New Currency: Excess Inertia 2.3.4 Coexistence of Various Currencies 3 Platform-Based Currencies 3.1 Special Currencies of the Traditional World 3.2 Platform-Based Currencies in the Digital Era 3.2.1 Online Video Games—The Case World of Warcraft Gold 3.2.2 Virtual Worlds and Linden Dollars 3.2.3 Social Networks and Facebook Credits 3.2.4 Promotion Platforms and Amazon Coin 3.3 Conclusion 3.4 Are Restricted Currencies Really Currencies? 4 Bitcoin and Arrival of Cryptocurrencies 4.1 The Double-Spending Problem 4.2 A Brief Overview of Bitcoin’s Design 4.3 Not the First One—Predecessors of Bitcoin 4.4 New Challenges Created by Bitcoin Design 4.4.1 Mining Arms Race and Electricity Consumption 4.4.2 Mining Pools and Centralization Propensity 4.4.3 Threat of Attacks 4.4.4 Deflationary Pressure 4.4.5 Governance 4.5 How Do bitcoin’s Attributes Compare to Earlier Money? 5 The Rich Landscape of Crypto 5.1 Improving Currency Functionality 5.2 Proof-of-Stake 5.3 Privacy Coins 5.4 Proliferation and Eventual Decline of Altcoins 5.5 The Emergence of Tokens 5.6 Stablecoins 5.7 Trading Crypto 6 Smart Contracts and Blockchain 6.1 The Rise of Ethereum 6.1.1 History 6.1.2 Ethereum Is “Different” 6.2 Smart Contracts 6.2.1 Smart Contracts on Ethereum 6.2.2 What Do Smart Contracts Need a Blockchain For? 6.3 Tokens 6.3.1 What Are Tokens? 6.3.2 Use of Tokens 6.4 Initial Coin Offering 6.5 Non-fungible Tokens 6.5.1 NFTs and Smart Contracts Do Not Solve Digital Art Ownership Problems 6.5.2 New Markets Enabled by NFTs 6.6 Dapps 6.7 Blockchain Governance, Dapp Governance, and Smart Contracts 7 Enterprise Blockchains 7.1 Distributed Database: What Is It and What For? 7.2 Limitation of Bitcoin’s Blockchain for Enterprise Use 7.3 Consensus for Permissioned Distributed Systems 7.4 Enterprise Blockchain Solutions 7.5 Government Applications 8 Future Full of Possibilities References Index