Chapter 3 dives deep into the beating heart of cryptocurrency, the paradoxical technology that has made early adherents billions, while adding nothing of real value to society. By any measure, crypto has failed at its stated goal: creating a better financial system. Looking to Bitcoin, we show how the core innovation – a distributed encrypted database – makes a terrible payment system, with slow, expensive, uncorrectable transactions. But crypto enthusiasts ignore more than a decade of failure, doubling down on grandiose claims about solving everything from financial inclusion to corporate governance while ignoring the far easier, low-tech solutions to these very real needs. We include an interview with an early supporter of the massive crypto currency Ethereum, who came to see how crypto became “just a tool for the wealthy to become wealthier” rather than fulfilling its promise of financial inclusion for the world’s 1.7 billion unbanked people.

This chapter examines cases where cryptocurrency has been used by terrorist actors. At the same time, the chapter also examines the important role played by the private sector in ensuring that virtual assets are not misused. The chapter also takes a peek at the role of government regulation in the industry and where the private sector has concerns regarding an overly interventionist approach that could stifle a new technology.

This chapter and Chapter 9 deal with crypto assets: first cryptocurrencies specifically (this chapter) and then stablecoins (Chapter 9). We look at the structures underpinning cryptocurrencies to see whether they can fulfil the classical attributes of money, that is, as a means of transactions, store of value, and unit of account, plus the other more complex functions discussed earlier. This chapter offers a complete overview of how cryptocurrencies work: blockchains, miners, distributed ledgers, and so on. It recaps the history of Bitcoin and details the structure of the transactions and its informational characteristics. Then we rate the performance of Bitcoin: transaction speed, user costs, mining rewards, privacy, environmental cost. We also consider variants of the Bitcoin scheme, such as Ethereum, with the potential advantages of “proof of stake” as opposed to “proof of work,” from the point of view of private users and social costs. Finally, we deal with security aspects: fraud, technical failures, scalability, and so on. The real-world case of El Salvador, the only country that attempted an official use of Bitcoin, with disastrous results, is mentioned. The conclusion is that Bitcoin and its peers are unlikely to be used broadly either as means of payment or as stores of value. However, they may eventually establish an interesting niche as part of diversified portfolios.

For better or worse, non-fungible tokens (NFTs) are the most peculiar and least expected art market innovations of the early twenty-first century. This chapter provides a brief history of NFTs and the NFT market, beginning with the invention of blockchain technology, through the creation of the Bitcoin, Namecoin, and Ethereum blockchains, and the NFT phenomenon. It describes a selection of NFT projects and artists and provides a theoretical account of both the art market and the NFT market.

Fueled in part by the wealth created from digital currencies, major art dealers such as Christie’s and Sotheby’s have embraced the sale of non-fungible tokens (NFTs) attached to unique digital works of art. NFTs, how they are related to the blockchain, and the evolution of the market for digital art is the subject of this chapter. Despite recent decreases in value, it appears that digital art can be added to the growing list of uses for blockchain technology, which is now becoming a part of modern life. This chapter proceeds in five sections. First, the overview of the evolutionary progression of blockchain technology in the form of NFTs. Second, a description of the emergence of the market for digital art. Third, an explanation and historical account of digital art and related recent issues. Fourth, a coverage of the abrupt decline in the market price for many NFTs. And last, a conclusion, which focuses on how the dramatic extension of blockchain and other digital technology to the world of art represents a new and exciting platform for creative expression. This chapter offers a valuable addition to the literature by providing a readable introduction and overview of what is now known about the likely impact of blockchain technology and NFTs to art. Additionally, this important development should have a significant impact on the future of innovation and property law.

Cryptocurrencies are reshaping money and payment systems in unprecedented ways. Catalysts include the launch of Bitcoin in 2009, the evolution of decentralised and centralised technologies, the announcement of Libra in 2019, the ongoing live trials of China’s Digital Yuan, and the COVID-19 pandemic and the related move to presenceless payments.This chapter considers the policy issues and choices associated with cryptocurrencies, stablecoins, and central bank digital currencies (‘CBDCs’) and emphasises that there is no single model for CBDC design. The catalysts reshaping monetary and payment systems challenge regulators. While Bitcoin and its thousands of progenies could be ignored safely by regulators, Facebook’s proposal for Libra, a global stablecoin (‘GSC’), brought an immediate and potent response from regulators globally. This proposal by the private sector to move into the traditional preserve of sovereigns– the creation of currency– was always likely both to trigger such a regulatory response and the development of CBDCs by central banks. China has moved first with its e-CNY– an initiative that may, in time, provoke a chain of CBDC issuance around the globe.

This chapter examines further examples of property rights, including money and wildlife.

Chapter 5. Bitcoin emerged in 2009 from a community of libertarian cryptographers who sought an alternative payment system free from fiat inflation and from government payment surveillance and censorship. Today it provides an alternative payment rail that circumvents central banks. Bitcoin serves as a medium of exchange in some transactions, but not yet as a commonly accepted medium of exchange. The Bitcoin source code keeps the number of Bitcoin in circulation growing, at an ever-slowing rate, along a programmed quantity path. Basic monetary theory shows that this supply mechanism has pros and cons: It avoids money supply shocks, but it rules out any supply response to variations in demand, making the purchasing power of Bitcoin more volatile than that of gold or (relatively well-managed) fiat, which limits the attractiveness of holding Bitcoin as a medium of exchange. The costs of the Bitcoin industry are borne by its users, not by third parties, to the same extent as those of any energy-using private industry. The non-zero chance of its serving as a future global money means that Bitcoin has a fundamental value. It does not inherently rest on an unsustainable chain-letter or “bigger fool” process.

The spectacular, if erratic, growth in the price of Bitcoin since its first implementation in 2009 has attracted substantial public interest. Unlike the stocks promoted by venture capitalists, it is not simply another instance of a well-established asset class, but rather a completely new asset class. Unlike those stocks, it is not promoted by well-connected finance industry insiders, but has been established by outsiders whose agenda was in part to escape the influence of established institutions. And yet, as this chapter will argue, there are some striking similarities in how its value has been constructed. Above all, the process has depended upon the development of a series of narratives about the value of Bitcoin, which have sought to connect it to lay theories of value or valuation conventions, and those narratives have been marketed to specific groups of potential buyers leading to the construction of an asset circle. This chapter traces some of the narratives that have been told about Bitcoin and how they have contributed to (or, in some cases, undermined) the growth of an asset circle for Bitcoin and thus to its spectacular growth in price.

Cryptocurrency markets are unregulated, and increasingly popular, places for ordinary investors to conduct transactions, not unlike the early Wild West of the First Era discussed in Chapter One. This Chapter explores the historical origins of cryptography and its application in the digital sphere. It begins with the Cypherpunk movement against traditional institutions and their demands for transactional privacy, which led the elusive Satoshi Nakamoto to introduce a viable alternative to traditional market transaction platforms in the form of Bitcoin, a cryptocorrency powered by blockchain technology. Blockchain transaction sequences, while anonymous or, more accurately, “pseudonymous,” are self-regulated system that allow users to transact without trusting each other and without having a trusted third-party intermediary. This novel technology ultimately led to the incredible success of Bitcoin currency, which dominates the cryptocurrency market today. Undeniably, Blockchain technologies are reshaping the financial landscape, but their implications extend far beyond the financial sector alone.

Blockchain technology, originally the basis of the Bitcoin cryptocurrency, has received great attention from both academics and practitioners in the last decade. The consequent rise of interest in blockchain applications by different industries as well as public sector organizations has been complemented by questions and research on the impact of blockchain on organizations’ business models. Blockchain is also considered a source of innovation opportunities and challenges for entrepreneurs. Therefore, this chapter explores its potential for digital entrepreneurs, by first introducing the main elements making up the technology and then discussing eight companies that apply blockchain in different sectors, thus providing insights for new ventures. The chapter aims to give an essential understanding of blockchain’s advantages for digital entrepreneurs as well as insights that could inspire potential future applications of this technology for value creation and innovation in different sectors.