Ignorance, Debt and Cryptocurrencies: The Old and the New in the Law and Economics of Concurrent Currencies

Abstract

Cryptocurrencies are expected to have a significant impact on banking, finance, and monetary systems. Due to uncertainty as to the possible future trajectories of the evolving cryptocurrency ecosystem, governments have taken a relatively hands-off approach to regulating such currencies. This approach may be justified within the theoretical information-economics framework of this paper, which draws parallels between the information economics of money and quasi-money creation within the current central banking, commercial banking and shadow banking systems with that of the cryptocurrency ecosystem. In particular, drawing lessons from the literature on the role of information in creating ‘safe assets’, this paper finds that by building on symmetric (common) knowledge as to the inner workings of the Bitcoin Blockchain - though in a different way - bitcoin possesses a degree of endogenous information insensitivity typical of safe assets. This endogenous information insensitivity could support bitcoin’s promise of maturing into a viable store of value and a niche medium of exchange. This finding should not be overlooked in the policy discussions for potential future regulatory interventions in the cryptocurrency ecosystem.

Keywords: Cryptocurrency, Bitcoin, Blockchain, Information asymmetry, Safe asset, Money, Debt

JEL Classification: E42, E51, E58, G01; G23; G28; K22; K23, K24