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Cryptocurrencies: Concept and Current Market Structure

University of Manchester, FinTech working paper no. 1, October 2017

65 Pages Posted: 27 Oct 2017 Last revised: 13 Nov 2017

Octavian Nica

University of Manchester, Faculty of Humanities, School of Social Sciences, Department of Economics, Students

Karolina Piotrowska

University of Manchester, Faculty of Humanities, School of Social Sciences, Department of Economics, Students

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance

Date Written: October 25, 2017

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

Suggested Citation

Nica, Octavian and Piotrowska, Karolina and Schenk-Hoppé, Klaus Reiner, Cryptocurrencies: Concept and Current Market Structure (October 25, 2017). University of Manchester, FinTech working paper no. 1, October 2017. Available at SSRN: https://ssrn.com/abstract=3059599

Octavian Nica

University of Manchester, Faculty of Humanities, School of Social Sciences, Department of Economics, Students ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Karolina Piotrowska

University of Manchester, Faculty of Humanities, School of Social Sciences, Department of Economics, Students ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Klaus Schenk-Hoppé (Contact Author)

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

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