Cryptofinance and Mechanisms of Exchange (eBook)

Preface 6
Contents 8
About the Editors 9
Cryptocurrencies as an Asset Class 11
1 Introduction 11
2 The Technology Behind Cryptocurrency 13
3 The Rise of Cryptocurrency 15
4 Potential Assets: Cryptographic Coins and Tokens 16
5 Cryptocurrencies as Investments 17
5.1 Investability 17
5.2 Impact on Portfolio Performance 19
6 Dataset and Methodology 20
6.1 Data 20
6.2 Methodology 22
6.2.1 Correlation 22
6.2.2 Liquidity 23
6.2.3 Stability 23
6.2.4 Portfolio Optimizations 24
7 Results 25
7.1 Correlation 25
7.2 Liquidity 28
7.3 Stability 30
7.4 Portfolio Optimization 31
8 Conclusion 35
References 36
Are Virtual Currencies Virtuous? Ethical and Environmental Issues 39
1 Introduction 39
2 Cryptocurrencies and Energy Consumption: Virtual Currency but Real Environmental Impact 42
2.1 Why This Is a Serious Issue? 42
2.1.1 Bitcoin and Other Main Crypto Currencies: An Overview 42
2.1.2 Systems Dynamics: Applied to the Bitcoin Case 44
2.2 What Are the Solutions? 46
2.2.1 Green Energy 46
2.2.2 Mining Equipment Energy Efficiency 46
2.2.3 System Parameters 46
2.2.4 Mining Competition 47
2.3 A Striking Example of Real Issues Related to Virtual Systems 48
3 Cryptocurrencies and the Dark Net: The Dark Side of Cryptocurrencies 48
3.1 Financing Illegal Activities 49
3.1.1 Financing of Illicit Products 49
3.1.2 Terrorist Financing 50
3.2 Cyber Attacks 51
3.3 Money Laundering and Tax Evasion 52
4 Ethical Aspects and Uses of Cryptocurrencies 53
4.1 Business Ethics Beyond Government Control 53
4.2 Reduction in Inflation and Central Bank Adjustments 54
4.3 Poverty Reduction 54
4.4 Protection of Privacy and Personal Data 55
5 Conclusion: Regulatory Issues and Challenges 56
References 58
Cryptocurrency Mining 61
1 Introduction 61
2 How Does Mining Work? 62
2.1 Methods of Mining 63
2.2 Hardware for Mining 66
2.3 Software for Mining 68
3 Evolution of Mining 69
4 Factors Influencing Mining 70
4.1 Energy Consumption and the Wastage of Resources 71
4.2 Volatility 74
4.3 Mining Puzzles/Solving Blocks 75
References 76
Regulating Bitcoin: A Tax Case Study 78
1 Introduction 78
2 The Coffee Bonding Theory 79
3 A Tax Case Study 80
3.1 Involuntary Noncompliance 81
3.2 Voluntary Noncompliance 82
4 Conclusion 83
References 83
Are Cryptocurrencies Truly Trustless? 85
1 Introduction 85
2 The Promise de Trustlessness 87
3 Hard Forks 88
4 Cryptocurrency Exchanges 89
4.1 Mt. Gox 89
4.2 Quadriga CX 90
5 Initial Coin Offerings 92
6 Recourse of Traditional Structures 93
6.1 SEC and CFTC as Regulators 93
6.2 Quadriga CX in Court 94
7 Conclusion 95
References 96
Blockchain and Alternative Sources of Financing 98
1 Introduction 98
2 The Ethereum Blockchain and the Ether Crypto-currency 99
2.1 CryptoKitties 99
2.2 Brave Browser 100
2.3 uPort 100
3 A New Age of Financing, Birth of the ICOs 101
3.1 What is an ICO? 101
3.2 Cryptoexchanges 104
3.3 Similarities Between ICO and Traditional Stock Market 105
3.4 The Pump and Dump Online Community 106
3.4.1 Consequences of Pumps and Dumps 107
4 A New Age of Financing, Birth of the STOs 108
4.1 Coin Classification Framework 108
4.2 The Dawn of the STOs 110
4.3 Avoiding the Mistakes of the Past 110
4.4 Steps for Launching an STO 112
4.5 Advantages and Disadvantages of STOs vs. ICOs 113
5 IEO, Innovating in an Emerging Industry 115
5.1 The IEO Process 115
6 Conclusion 116
References 117
Tokenomics 119
1 Introduction 119
2 Initial Coin Offerings 120
3 History of ICOs 120
4 Literature Review of Parameter of Tokenomics 121
5 Research of Parameter of Tokenomics 125
6 Conclusion 127
References 128
Crypto Tokens and Token Offerings: An Introduction 130
1 Introduction 130
2 Tokens and Token Offerings 131
2.1 What Are Crypto Tokens? 131
2.2 A Comparison of Token Offerings and IPOs 132
3 The Emergence of Tokenization and Tokenomics 133
3.1 Tokenomics 133
3.2 The Economic Value of Tokens for Entrepreneurs 134
3.2.1 Benefits of ICOs to Entrepreneurs 134
3.2.2 Drawbacks 136
3.2.3 Implications for Entrepreneurs 136
3.3 The Economic Value of Tokens for Investors 137
3.4 Corporate Governance with Tokens 137
3.4.1 Token Holders as a New Type of Corporate Stakeholders 138
3.4.2 The Emergence of Distributed Governance 138
4 Valuation of Crypto Tokens 139
4.1 Token Velocity Methodology 139
4.2 Crypto J-Curve Methodology 140
4.3 Network Value-to-Transaction Ratio (NVT) 141
4.4 Security Token Valuation 142
4.5 Traditional Valuation Methods in Crypto Valuation 142
5 ICO Underpricing and Token Returns 143
5.1 Underpricing and First-Day Returns 143
5.2 Long-Term Returns and Performance 144
5.3 Behavioral Biases in ICOs 145
6 Conclusion 146
References 146
Initial Coin Offerings: What Do We Know and What Are the Success Factors? 150
1 Introduction 150
2 The Market for ICOs and Cryptocurrencies 151
2.1 ICO Market Overview 151
2.2 Four Stages of ICOs 152
3 Planning Stage of ICOs 152
3.1 White Paper 152
3.1.1 White Paper Quality and Informativeness 153
3.1.2 Legal Aspects of the White Paper 153
3.1.3 Technical Aspects of the White Paper 154
3.1.4 Disclosure on the Use of Proceeds and Token Allocation 154
3.1.5 Management Team and Advisers 154
3.2 Token Design and Tokenomics 155
3.2.1 Token Type 155
3.2.2 Fraction of Tokens for Sale 156
3.2.3 Soft Cap and Hard Cap 156
3.2.4 Token Supply 157
3.2.5 Lock-up Mechanism 158
3.2.6 Currency Accepted 158
3.3 Legal Aspects 158
3.3.1 Sales Restrictions 158
3.3.2 Know Your Customer (KYC) Policies 159
3.4 Technology and Source Code 160
3.5 Marketing and Social Media 161
3.5.1 Social Media 161
3.5.2 ICO Ratings and Online Forums 162
4 ICO Sale 163
4.1 ICO Presale 163
4.2 ICO Sale 164
4.3 Post-ICO 165
4.3.1 Exchange Listing 166
5 Conclusion 166
References 167
Initial Coin Offerings (ICOs): Risks, Regulation, and Accountability 170
1 Introduction 170
2 Academic Interest in ICOs 172
3 The Wild West of ICOs 174
4 Regulatory Responses to ICOs 176
5 Conclusion 179
References 181
Cryptocurrencies and Risk Mitigation 183
1 Introduction 183
2 Cryptocurrency Market Efficiency 184
3 Risk Mitigation Using Cryptocurrencies 185
4 Hedging Cryptocurrency Investments 187
5 Economic Policy and Market Uncertainties 190
6 Cryptocurrencies and Gold 193
References 194
Index 197