Cryptocurrencies: Concept and Current Market Structure

Abstract

Since Bitcoin brought cryptocurrencies into the spotlight in the early 2010s, the number and diversity of digital coins expanded dramatically. With this report, we aim to provide a concise introduction on the emergence and defining features of cryptocurrencies for researchers (and students) in economics, finance, mathematics and computer science. In doing so, we survey both the academic and non-academic literature in order to offer a brief history of cryptocurrencies, starting from the early 1980s, and we describe the key innovative aspects behind cryptocurrencies.

We group these innovations into two broad categories: technological innovation and governance innovation. The main technological innovation behind cryptocurrencies is the blockchain – a public ledger of all transactions, secured through cryptography. We provide a non-technical description of the blockchain and of all the auxiliary tools and systems that are used to transact cryptocurrencies. In terms of governance, the main innovation is the ability of any user to transact cryptocurrencies without the involvement of a 3rd party. Although this fact is used to justify the security of cryptocurrencies, we point out that each cryptocurrency is still controlled, to a certain extent, by a set of agents that operate (within or outside of the blockchain) with disproportionate power. We provide an overview of these agents, and a classification of cryptocurrencies based on their governance structure. The report also contains a list of the most relevant cryptocurrencies at the moment of writing.

Keywords: Cryptocurrencies, blockchain, Bitcoin, mining, governance, decentralisation

JEL Classification: Y20