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This book describes how the rapid advancement in encryption and network computing gave birth to new tools and products that have influenced the local and global economy alike. One recent and notable example is the emergence of virtual currencies (such as Bitcoin) also known as cryptocurrencies. Virtual currencies introduced a fundamental transformation that affected the way goods, services and assets are exchanged. As a result of its distributed ledgers based on blockchain, cryptocurrencies not only offer some unique advantages to the economy, investors, and consumers, but also pose considerable risks to users and challenges for regulators when fitting the new technology into the old legal framework. The core of this proposed book is to present and discuss the evidence on financial asset capabilities of virtual currencies. The contributors of this volume analyze several interesting and timely issues such as the particularities of virtual currencies and their statistical characteristics; the diversification benefits of virtual currencies; the behavior and dependence structure between virtual currencies and the financial markets; the economic implications of virtual currencies, their effects, their price risk, and contagion spillovers in a unified and comprehensive framework; the future of virtual currencies and their distributed ledgers technology.



Cryptocurrencies as an Asset Class

Cryptocurrencies are a new emergence at the intersection of technology and finance. It is therefore of particular interest whether cryptocurrencies can form a new asset class or need to be subsumed under an existing one. We find that cryptocurrencies show characteristics of a distinct asset class based on strong internal correlation, an absence of correlation with any traditional asset class as well as sufficient market liquidity, while market stability has room for improvement. Adding cryptocurrency to traditional portfolio structures may lead to significant and persistent risk-adjusted outperformance. These results support the careful introduction of cryptocurrencies into the asset management mainstream.
Sinan Krückeberg, Peter Scholz

Are Virtual Currencies Virtuous? Ethical and Environmental Issues

Cryptocurrencies have gained in popularity and generated a great deal of enthusiasm in recent years with regard to the sustained increase in the number of transactions achieved by miners. On what scale can we consider the process and uses of virtual money to be ethical? What are the misuses related to their use? In this chapter, we study the ethical and environmental issues of cryptocurrencies. First, regarding the environmental issue, the major cryptocurrencies use a large amount of electricity for mining, which has a significant impact on the energy production system and global warming. Second, we discuss the new type of Dark economy that has emerged with these currencies, thanks to the anonymity of transactions. We particularly emphasize the unethical use of cryptocurrencies, namely the virtual money laundering and tax evasion, the financing of illegal activities (i.e. illicit products, terrorist financing) and cyber-attacks. Third, we develop the ethical use of virtual money and show that this kind of currency, which guarantees the protection of privacy and anonymity of transactions, can be a good solution to mitigate transaction costs and reduce poverty. They can also be beneficial in the context of debt crises and hyperinflation. Thus, cryptocurrencies per se are not evil; it is their uses that can be.
Sondes Mbarek, Donia Trabelsi, Michel Berne

Cryptocurrency Mining

This chapter is mainly concerned with outlining the process of cryptocurrency mining. There are dozens of altcoins which you could mine; however, Bitcoin by far is the most popular choice for cryptocurrency miners. This is primarily due to the advancement in technology concerning the hardware and software used to mine cryptocurrencies. Specialized hardware and software are now being designed for the sole purpose of mining Bitcoin. Miners have a variety of hardware and software to choose from depending on their mining strategy. This chapter introduces the basic concept of mining, its essential functions, the hardware and software required for mining, different methods of mining and the factors influencing mining.
Vikrant Gandotra, François-Éric Racicot, Alireza Rahimzadeh

Regulating Bitcoin: A Tax Case Study

This chapter adapts the Coffee bonding theory to the modern context of bitcoin, using tax as a case study. As the theory predicts, tax authorities may be able to increase the legitimacy of bitcoin by improving tax compliance and reducing tax evasion. Thus, while the Coffee theory arose two decades ago to explain the cross-listing of foreign company shares, it has implications for the modern context of bitcoin.
Margaret Ryznar

Are Cryptocurrencies Truly Trustless?

A common narrative of cryptocurrencies presents them as “trustless,” decentralized, and autonomous systems. The “trustlessness” is meant to suggest lack of need for third-party verification in blockchain technologies, but the term has been somewhat conflated with broader connotations of “trust.” This chapter draws out that nuance, and critically assesses that claim, by emphasizing the human element of trust in cryptocurrencies across various contexts. It does so by highlighting four activities that require both direct human intervention and direct human participation, including: “hard forks” to directly change protocols, the management of cryptocurrency exchanges, the emission of ICOs, and investor recourse to traditional governance institutions including courts of law. The findings of the chapter therefore suggest that the cryptocurrency space is not “trustless” in every sense as it is still reliant on the trust-element in human agency and structure.
Usman W. Chohan

Blockchain and Alternative Sources of Financing

For the past decade, Bitcoin has captured the attention of the world with its extreme price swings and yet constant price rises, outperforming most traditional asset classes. Along with Bitcoin came the phenomenon of the ICOs or Token Offerings, equally captivating, that turned start-ups’ founders into overnight millionaires. For the first time, start-ups with a compelling vision, no longer needed to plead their case, by pitching to multiple stone faced VCs, all so they could raise a few hundred grants. Start-ups could now pitch to the world and raise millions in a matter of minutes. Prompting the CEO of one such start-ups that raised USD25 million and based in Toronto, Canada, to say: “The crypto world is not real, it is a dream”. In this chapter, we will explore the various alternative sources of financing such as ICOs, STOs and IEOs that came along with the Bitcoin, their implications and what we can expect going forward.
Othalia Doe-Bruce


The tokenomics of Initial Coin Offerings is a new field of research. The wording Initial Coin Offering is only a few years old, the field of tokenomics is even younger. This chapter will discuss the parameters of the tokenomics of Initial Coin Offerings in a qualitative and quantitative way to gather knowledge about upcoming standards and the definition of current requirements. As more and more Initial Coin Offerings coming to the market, a fundamental view of tokenomics is required. This chapter identifies 13 important parameters of tokenomics. Each of them is examined by literature and the used sample data set. Further parameters are identified as well as further research objectives in the field of tokenomics.
Ralf Wandmacher

Crypto Tokens and Token Offerings: An Introduction

This chapter provides an overview of crypto tokens and token offerings. Based on both utility tokens and security tokens, this chapter reviews the economics of tokens and token offerings. Specifically, it discusses the economic value of tokens for the financing, operations, and corporate governance of the issuing companies. It also discusses economic values for token investors. This chapter also discusses various token valuation models, as well as the underpricing and returns of the token markets.
Chen Liu, Haoquan Wang

Initial Coin Offerings: What Do We Know and What Are the Success Factors?

This chapter reviews empirical studies on the characteristics of initial coin offerings (ICO) and determinants of ICO success. This chapter contributes to the literature by providing a discussion on all key elements in a full-cycle ICO and conducts comprehensive literature review of the common practice and key success factors for ICOs. Findings of this chapter provide important managerial and policy implications. Regulators should pay attention to the specific market frictions discussed in this chapter in order to provide a regulation framework that protects investors and promotes the market efficiency. The optimal regulatory framework should address information asymmetry by using disclosure provisions and impose legal obligations on analysts reviewing ICOs and the marketing materials.
Chen Liu, Haoquan Wang

Initial Coin Offerings (ICOs): Risks, Regulation, and Accountability

The emergence of the cryptocurrency as an investment vehicle has brought the phenomenon of Initial Coin Offerings (ICOs) into the spotlight, since they provide rapid access to capital for new ventures, but suffer from drawbacks relating to regulation and accountability. In that regard, this chapter provides a review of the recent literature on ICOs before proceeding with a discussion of the regulatory and other risks that ICOs pose for market participants, thereby encouraging a broader discussion about where such a novel capital-raising mechanism may lie in the investment universe, and how the weaknesses of ICOs may be addressed so as to better leverage its strengths towards value creation and innovation.
Usman W. Chohan

Cryptocurrencies and Risk Mitigation

Since their surge in the last decade cryptocurrencies have gained considerable attention in financial markets, and in academic research. Scholars and practitioners are showing interest in the role of cryptocurrencies as part of investors’ risk management strategies. Understanding how the returns of different cryptocurrencies, and the associated volatilities, relate to the returns and volatilities of other assets (including other cryptocurrencies, stocks, commodities, and bonds, among others) is crucial to derive conclusions regarding the potential hedging and diversification advantages they could offer to investors’ portfolios. The notion of volatility transmission, its intensity and direction, is of importance in explaining the risk management benefits that could stem from adding a specific asset, such as cryptocurrencies, to an existing portfolio.
Haifa Amairi, Boushra El Haj Hassan, Ahlem Zantour


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