Cryptocurrencies addendum

Transcription

1 Innovation and Cryptoventures Cryptocurrencies addendum Campbell R. Harvey Duke University and NBER January 21, 2018

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3 Purposes of money: Primary Unit of Account: A way to compare the value of various goods and services Medium of Exchange: Allows for non barter transactions. Secondary Store of Value: Allows value to be retained even if partially rather than complete decay (e.g. storing food). Transfer of Value: Ease of transfer of value and to defer value. Original vision of bitcoin was for a technology that would make transactions more efficient (the transfer of value motive) 3

4 Three ways to obtain cryptocurrency Win a block. Receive a gift or be paid for goods or services Buy on an exchange Currently 109 exchanges that trade bitcoin 4

5 for/btc/ 5

6 Beware of exchanges Largely unregulated. This is the reason that the SEC has blocked the formation of ETFs based on physical bitcoin Exchange often holds your keys and they pool all the keys acting like a bank The advantage is that transactions can happen on the exchange in an off chain way. This is what Coinbase.com does. Their exchange is GDAX The exchanges are a centralizing force 6

7 Beware of exchanges: Bitfinex Approximately 10% of all bitcoin trading; registered in BVI History of multiple hacks: May ,500 BTC stolen; ,756 BTC stolen customers forced to take a 36% haircut on deposits; Bitfinex does not use fiat currency wire transfers it uses a cryptocurrency called Tether (USDT) 7

8 Beware of exchanges: Bitfinex Tether is supposedly backed 1:1 with USD; capitalization is $1.6 billion 8

9 Beware of exchanges: Bitfinex Tether hacked in November 2017 for $30 million. Once you have a tether, the value is stable and you can use that on many different exchanges to quickly trade (wire transfers could take days) If you receive a tether, one dollar is deposited in your vault claims 30 million stable token stolen attacker/ 9

10 Beware of exchanges: Bitfinex Supply of tether has increased dramatically murky relationship between bitfinex and tether is raising suspicions/ 10

11 Beware of exchanges: Bitfinex Tether based in British Virgin Islands How do we know that the dollar deposits match the outstanding tether? November 21, 2017 Nathaniel Popper of NYT breaks story that Bitfinex and Tether are operated by the same people. This was revealed in the Paradise Papers. Why is this an issue? bitfinex tether.html 11

12 Beware of exchanges: Bitfinex First, Bitfinex was not transparent about its relationship with Tether Second, read the fine print for tether bitfinex tether.html 12

13 Beware of exchanges: Bitfinex Third, if not fully collateralized, it is possible that Bitfinex is creating money that could artificially increase the price of cryptocurrencies like bitcoin. Bitfinex appears to be creating Tether coins out of thin air and then using them to buy Bitcoin and push the price up. content/uploads/2017/09/final Tether Consulting Report _Redacted.pdf 13

14 Beware of exchanges: Bitconnect Begins in January 2017 Launches with Bitconnect Coin (BCC). You needed to send bitcoin to the exchange and they would convert it to BCC With the BCC, you were guaranteed up to 120% return per year and users were earning interest by holding their coin for helping maintain the security of the network ponzi scheme no sympathy from crypto community 14

15 Beware of exchanges: Bitconnect 15

16 Beware of exchanges: Bitconnect Coin rises to $

17 Beware of exchanges: Bitconnect Coin rises to $

18 Beware of exchanges: Bitconnect Social media campaign attacks Bitconnect 18

19 Beware of exchanges: Bitconnect Blows up January 17,

20 Beware of exchanges: Bitconnect January 17, 2018 exchanges closes following warnings from Texas and North Carolina regulators. Drops 87%. closes virtually its entire operation bcc token drops 87 20

21 Beware of exchanges: Bitconnect Current price = $18 21

22 Beware of exchanges: Bitconnect news/95/bitconnect update regarding the changes to lending and exchange functions/ 22

23 Beware of exchanges: Bitconnect news/95/bitconnect update regarding the changes to lending and exchange functions/ 23

24 Beware of exchanges: Bitconnect 24

25 Beware of exchanges: Bitconnect 25