Banking Beyond Banks and Money (eBook)

Contents 6
1 Introduction 8
Abstract 8
References 11
2 Classification of Crowdfunding in the Financial System 12
Abstract 12
1 Emergence of Social Financing in the Digital Age 12
2 The Many Facets of Crowdfunding 13
3 Evidence of Positive Disruption to Traditional Financing 15
4 Insights on Social Behavior in P2P Lending Markets 16
5 Recent Developments in Equity-Based Crowdfunding 18
References 20
3 Crowdfunding and Bank Stress 24
Abstract 24
1 Introduction 24
2 Literature and Background 28
2.1 Bank Funding and Crowdfunding 28
2.2 Institutional Background 29
3 Sampling and Identification 30
3.1 Sampling 30
3.2 Identification Through Bank Bailouts 31
3.3 Venture and Crowdfunding Traits 35
4 Model and Results 38
4.1 Specification and Baseline Results 38
4.1.1 Credit Scores 41
4.1.2 Size 41
4.1.3 Tangibility 42
4.1.4 Characteristics of the Management Team and Venture 43
4.1.5 Rating of Sophisticated Investors 44
4.2 Bank Characteristics 45
4.3 Alternative Bank Stress Indicators 46
4.4 Using Versus Successfully Completing Crowdfunding 49
5 Conclusion 51
Appendix 51
References 58
4 How Peer to Peer Lending and Crowdfunding Drive the FinTech Revolution in the UK 62
Abstract 62
1 Overview of the Alternative Finance Sector in the UK 62
2 UK’s Leading P2P and Crowdfunding Platforms 65
2.1 Funding Circle 65
2.2 Zopa 66
2.3 RateSetter 66
2.4 Crowdcube 66
2.5 Seedrs 67
2.6 SyndicateRoom 67
3 Business Models and Drivers Behind the Success of Peers to Peer Lending 67
4 Business Models and Drivers Behind the Success of Equity Crowdfunding 71
5 FinTech in China: From Shadow Banking to P2P Lending 76
Abstract 76
1 Introduction 77
2 Banking in China: The Politics of Money 79
2.1 Political Intervention and the (Mis)Allocation of Money 80
2.2 Preparing for the Necessary Liberalization of Finance 81
3 A Window of Opportunity: Bring the Shadows to the Light 84
3.1 Bringing the Shadows to the Light: A Regulatory Approach 86
3.2 Bringing the Shadows to the Light: The Technological Route 90
4 RegTech: Maximizing the Benefits of FinTech 93
4.1 Compliance: An Extensive Case for Automation 94
5 Conclusion: Leap-Frogging the World? 100
Acknowledgments 102
6 Features or Bugs: The Seven Sins of Current Bitcoin 104
Abstract 104
1 Bitcoin: A Cryptographer’s Dream 104
1.1 Short Description of How Bitcoin Works 105
2 Problem 1: Gold Rush Syndrome 106
3 Problem 2: Weak Integrity Protection 108
4 Problem 3: Poor Speed and Instability 109
4.1 Genius or Engineering Mistake? 110
5 Problem 4: Bitcoin Monetary Policy 110
5.1 The Appreciation Argument 111
6 Problem 5. Misunderstanding the Threats 112
6.1 Emerging Threats 114
6.2 Is the Problem not Already Solved? 116
7 The Basic Blockchain Manipulation Attack 117
7.1 The Question of Dominance 118
7.2 Attacks with Hash Rate Displacement 119
8 Problem 6: Dangers of Open Source 120
8.1 The Question of Bitcoin Source Code 120
8.2 Bitcoin and the Open Design Principle 121
8.3 Open Design, Bitcoin and Kerckhoffs’ Principle 121
9 Problem 7: Bitcoin Elliptic Curve 121
9.1 Urgent Action for Bitcoin Community 123
9.2 A Fix for Individual Bitcoin Users 123
10 Summary and Conclusion 124
Acknowledgments 125
References 125
7 Decentralized Banking: Monetary Technocracy in the Digital Age 128
Abstract 128
1 Can Monetary Policy Adhere to Rule-Following? 130
2 What a Viable Digital Currency System Might Look like 133
3 Conclusion 136
References 137
8 Trustless Computing—The What Not the How 139
Abstract 139
1 Introduction 139
2 Strong Economic Signals 140
3 A Global Computer 141
4 Consensus: An Old Compute Paradigm Made New 143
4.1 Non-localisation: A Truly Global Computer Running by Consensus 144
4.2 A Machine of Unparalleled Digital Security and Resilience 144
4.3 A Perfectly Auditable System 145
5 The Perennial Problem 146
6 Further Examples 147
6.1 Consumer Goods 147
6.2 Online Dating 147
6.3 International Trade 149
Acknowledgments 150
9 Reinventing Money and Lending for the Digital Age 151
Abstract 151
1 Introduction 151
2 Comparing Bitcoin with Other Monies 156
2.1 Divisibility 160
2.2 The Open Source Cryptocurrency Revolution and Hayek’s Denationalization Proposal 161
2.3 Comparing Banknotes and Card Payments with Bitcoins 164
3 Virtual Currency Adoption: China, Cyprus, and Iceland 165
3.1 The Chinese Back and Forth on Bitcoin 165
3.2 The Cyprus Bail-in Tax and the Subsequent Bitcoin “Bubble” 168
3.2.1 Further Evidence on the Reaction to the Cypriot Tax 170
3.3 A Crypto Currency Experiment on Iceland: Auroracoin 171
4 The Relative Stability of Bitcoin as a Store of Value 174
4.1 Return on Investment 179
5 P2P Lending with Bitcoin 179
6 Conclusions 183
References 184
10 How Non-banks are Boosting Financial Inclusion and Remittance 187
Abstract 187
1 The Opportunity for Non-banks in Financial Inclusion and Remittance 187
2 Mobile Banking: Overview 188
2.1 Mobile Money 189
2.1.1 Usage and Availability of Mobile Money 189
2.1.2 Mobile Money Applications 190
2.1.3 Benefits of Mobile Money 190
2.2 Other Mobile Financial Services Offerings 191
2.3 New Models in Remittance 191
2.4 Remittance Process 192
2.5 Costs of Remittances 192
2.6 Mobile Money in Remittance 193
2.7 Bitcoin Remittance 194
2.7.1 Flow of Funds in Bitcoin Remittance 195
2.7.2 Commercial Model 195
2.7.3 Regulatory Environment 197
2.7.4 Players in the Bitcoin-Enabled Remittance Space 198
3 Conclusion 200
References 200
11 Scalability and Egalitarianism in Peer-to-Peer Networks 203
Abstract 203
1 Introduction 203
2 A Brief Introduction to Complex Networks 204
2.1 Erd?s-Rényi Networks 205
2.2 Scale-Free Networks 206
2.3 Network Egalitarianism 207
2.4 Collective Properties of Networks 209
3 A Network Model of Blockchain Forks: Efficiency and Egalitarianism 209
3.1 Erd?s-Rényi Networks 210
3.2 Comparing the Performance of Different Networks: Erd?s-Rényi Versus Scale-Free Networks 213
4 Conclusion 215
References 216
12 Are Transaction Costs Drivers of Financial Institutions? Contracts Made in Heaven, Hell, and the Cloud in Between 219
Abstract 219
1 Introduction 220
2 Institutional Theory 223
2.1 Property Right Regimes 223
2.2 The Enforcement Mechanism 224
2.3 Informal Institutions 225
2.4 Formal Institutions and Contracting 226
2.5 Technology, Transaction Costs and Institutional Change 227
2.6 Transaction Costs in History 228
3 P2P Technology and Transaction Costs 228
3.1 Bitcoin 229
3.2 Blockchain 230
3.3 Smart Contracts 231
3.4 Inefficiencies of Legal Documents 232
3.5 Common Accord 233
3.6 Banking and the Financial System 234
4 Modeling Transaction Costs and Financial Institutions 234
4.1 A Step-by-Step Modeling Strategy to Explore the Relative Importance of Transactions Costs for the Emergence of Financial Institutions 237
5 Conclusion 241
References 241
13 Understanding Modern Banking Ledgers Through Blockchain Technologies: Future of Transaction Processing and Smart Contracts on the Internet of Money 244
Abstract 244
1 Introduction 245
2 Blockchain Technology Emerges 247
2.1 Basics of Blockchain Technology 248
2.2 Permissionless and Permissioned Blockchains 249
2.2.1 Permissionless Blockchains 249
2.2.2 Permissioned Blockchains 250
2.2.3 Smart Contracts 251
2.3 Differences Between Blockchains and Databases 252
3 Data Security, Confidentiality, Availability and Integrity on the Blockchain 254
3.1 Data Integrity 255
3.2 Clark-Wilson Model for Data Integrity 258
3.3 Biba Models for Data Integrity 260
3.4 Integrity Considerations in Financial Applications 261
4 Considerations in Blockchain Technology Developments for Bank Ledgers and Financial Accounting 263
4.1 Possible Roles for Blockchain Technology Developments for Government Cash Management: Treasury Single Accounts 265
4.1.1 A Complete Treasury Single Account Structure 267
4.1.2 Possible Blockchain Architectures for a Complete TSA 268
4.2 Possible Roles for Blockchain Technology Developments for Commercial Bank Ledgers 270
4.2.1 Considerations of Blockchain Ledgers Regarding Automated Provisioning Processes of Losses Under IFRS9 273
5 Blockchain Technology and the Trade Settlement Process 275
5.1 Blockchain in the Settlement Cycle 277
6 Blockchain Technology and Multi-signature Escrow Services 279
7 Conclusions 280
References 281
14 Blockchains and the Boundaries of Self-Organized Economies: Predictions for the Future of Banking 284
Abstract 284
1 Introduction 285
2 A Bank Is a Firm that Intermediates a Market 286
3 New Economics of Blockchain 287
3.1 Blockchain as a New General Purpose Technology 287
3.2 Blockchain as a Technology of Decentralization, like a Market 289
3.3 The Transaction Cost Approach to Blockchain 290
3.4 A Blockchain Is a Catallaxy 290
4 What the Economics of Blockchains Implies for Banking 291
5 The New Political Economy of Blockchain 293
5.1 Cryptosecession to Blockchain Economies 293
5.2 Blockchains and Institutional Exit Costs 294
5.3 Blockchains and Institutional Evolution 296
6 Conclusion 297
Acknowledgments 298
References 298
15 Blockchain 2.0 and Beyond: Adhocracies 302
Abstract 302
References 307
List of Concepts 309
List of Names/Authors Cited in the Book 313
List of Names 318