Not to be confused with virtual currency.

A⠀cryptocurrency,⠀crypto-currency,⠀or⠀crypto[a]⠀is a⠀digital⠀currency⠀designed⠀to work as⠀a medium⠀of⠀exchange⠀through a⠀computer⠀network⠀that is⠀not⠀reliant on⠀any⠀central⠀authority,⠀such as a⠀government⠀or bank,⠀to uphold⠀or⠀maintain⠀it.[2] It⠀is a⠀decentralized⠀system for⠀verifying⠀that the⠀parties to⠀a⠀transaction⠀have the⠀money they⠀claim to⠀have,⠀eliminating⠀the need⠀for⠀traditional⠀intermediaries,⠀such as⠀banks,⠀when funds⠀are being⠀transferred⠀between⠀two⠀entities.[3]

Individual⠀coin⠀ownership⠀records⠀are stored⠀in a⠀digital⠀ledger,⠀which is a⠀computerized⠀database⠀using⠀strong⠀cryptography⠀to secure⠀transaction⠀records,⠀control⠀the⠀creation⠀of⠀additional⠀coins, and⠀verify the⠀transfer⠀of coin⠀ownership.[4][5][6]⠀Despite⠀their⠀name,⠀cryptocurrencies⠀are not⠀considered⠀to be⠀currencies⠀in the⠀traditional⠀sense, and⠀while⠀varying⠀treatments⠀have been⠀applied to⠀them,⠀including⠀classification⠀as⠀commodities,⠀securities,⠀and⠀currencies,⠀cryptocurrencies⠀are⠀generally⠀viewed as⠀a distinct⠀asset⠀class in⠀practice.[7][8][9]⠀Some⠀crypto⠀schemes⠀use⠀validators⠀to⠀maintain⠀the⠀cryptocurrency.⠀In a⠀proof-of-stake⠀model,⠀owners put⠀up their⠀tokens as⠀collateral.⠀In return,⠀they get⠀authority⠀over the⠀token in⠀proportion⠀to the⠀amount⠀they⠀stake.⠀Generally,⠀these⠀token⠀stakers⠀get⠀additional⠀ownership⠀in the⠀token over⠀time via⠀network⠀fees,⠀newly⠀minted⠀tokens, or⠀other such⠀reward⠀mechanisms.[10]

Cryptocurrency⠀does not⠀exist in⠀physical⠀form (like⠀paper⠀money) and⠀is⠀typically⠀not issued⠀by a⠀central⠀authority.⠀Cryptocurrencies⠀typically⠀use⠀decentralized⠀control as⠀opposed to⠀a central⠀bank⠀digital⠀currency⠀(CBDC).[11]⠀When a⠀cryptocurrency⠀is minted,⠀or created⠀prior to⠀issuance,⠀or issued⠀by a⠀single⠀issuer, it⠀is⠀generally⠀considered⠀centralized.⠀When⠀implemented⠀with⠀decentralized⠀control,⠀each⠀cryptocurrency⠀works⠀through⠀distributed⠀ledger⠀technology,⠀typically⠀a⠀blockchain,⠀that⠀serves as⠀a public⠀financial⠀transaction⠀database.[12]

The⠀first⠀cryptocurrency⠀was⠀Bitcoin,⠀which was⠀first⠀released⠀as⠀open-source⠀software⠀in 2009.⠀As of⠀March⠀2022,⠀there were⠀more than⠀9,000⠀other⠀cryptocurrencies⠀in the⠀marketplace,⠀of which⠀more than⠀70 had a⠀market⠀capitalization⠀exceeding⠀$1⠀billion.[13]

History

See⠀also:⠀History of⠀bitcoin

In⠀1983,⠀American⠀cryptographer⠀David⠀Chaum⠀conceived⠀of a type⠀of⠀cryptographic⠀electronic⠀money⠀called⠀ecash.[14][15]⠀Later, in⠀1995, he⠀implemented⠀it through⠀Digicash,[16]⠀an early⠀form of⠀cryptographic⠀electronic⠀payments.⠀Digicash⠀required⠀user⠀software⠀in order⠀to⠀withdraw⠀notes from⠀a bank and⠀designate⠀specific⠀encrypted⠀keys⠀before it⠀can be⠀sent to a⠀recipient.⠀This⠀allowed⠀the⠀digital⠀currency⠀to be⠀untraceable⠀by a third⠀party.

In⠀1996, the⠀National⠀Security⠀Agency⠀published⠀a paper⠀entitled⠀How to⠀Make a⠀Mint: The⠀Cryptography⠀of⠀Anonymous⠀Electronic⠀Cash,⠀describing⠀a⠀cryptocurrency⠀system.⠀The paper⠀was first⠀published⠀in an MIT⠀mailing⠀list[17]⠀and later⠀in 1997 in⠀The⠀American⠀Law⠀Review.[18]

In⠀1998, Wei⠀Dai⠀described⠀"b-money",⠀an⠀anonymous,⠀distributed⠀electronic⠀cash⠀system.[19]⠀Shortly⠀thereafter,⠀Nick Szabo⠀described⠀bit⠀gold.[20]⠀Like⠀Bitcoin⠀and other⠀cryptocurrencies⠀that would⠀follow it,⠀bit gold⠀(not to be⠀confused⠀with the⠀later⠀gold-based⠀exchange⠀BitGold)⠀was⠀described⠀as an⠀electronic⠀currency⠀system⠀which⠀required⠀users to⠀complete a⠀proof of⠀work⠀function⠀with⠀solutions⠀being⠀cryptographically⠀put⠀together⠀and⠀published.

In⠀January⠀2009,⠀Bitcoin⠀was⠀created by⠀pseudonymous⠀developer⠀Satoshi⠀Nakamoto.⠀It used⠀SHA-256, a⠀cryptographic⠀hash⠀function,⠀in its⠀proof-of-work⠀scheme.[21][22]⠀In April⠀2011,⠀Namecoin⠀was⠀created as⠀an attempt⠀at forming⠀a⠀decentralized⠀DNS. In⠀October⠀2011,⠀Litecoin⠀was⠀released⠀which used⠀scrypt as⠀its hash⠀function⠀instead of⠀SHA-256.⠀Peercoin,⠀created in⠀August⠀2012, used⠀a hybrid⠀of⠀proof-of-work⠀and⠀proof-of-stake.[23]

See⠀also:⠀Cryptocurrency⠀bubble §⠀History

Cryptocurrency⠀has⠀undergone⠀several⠀periods of⠀growth and⠀retraction,⠀including⠀several⠀bubbles⠀and market⠀crashes,⠀such as in⠀2011,⠀2013-2014–15,⠀2017-2018⠀and⠀2021–2023.[24][25]

On⠀6 August⠀2014, the⠀UK⠀announced⠀its⠀Treasury⠀had⠀commissioned⠀a study of⠀cryptocurrencies,⠀and what⠀role, if⠀any, they⠀could play⠀in the UK⠀economy.⠀The study⠀was also⠀to report⠀on whether⠀regulation⠀should be⠀considered.[26]⠀Its final⠀report was⠀published⠀in⠀2018,[27]⠀and it⠀issued a⠀consultation⠀on⠀cryptoassets⠀and⠀stablecoins⠀in January⠀2021.[28]

In⠀June 2021,⠀El⠀Salvador⠀became the⠀first⠀country to⠀accept⠀Bitcoin as⠀legal⠀tender,⠀after the⠀Legislative⠀Assembly⠀had voted⠀62–22 to⠀pass a⠀bill⠀submitted⠀by⠀President⠀Nayib⠀Bukele⠀classifying⠀the⠀cryptocurrency⠀as⠀such.[29]

In⠀August⠀2021, Cuba⠀followed⠀with⠀Resolution⠀215 to⠀recognize⠀and⠀regulate⠀cryptocurrencies⠀such as⠀Bitcoin.[30]

In⠀September⠀2021, the⠀government⠀of China,⠀the single⠀largest⠀market for⠀cryptocurrency,⠀declared⠀all⠀cryptocurrency⠀transactions⠀illegal.⠀This⠀completed⠀a⠀crackdown⠀on⠀cryptocurrency⠀that had⠀previously⠀banned the⠀operation⠀of⠀intermediaries⠀and miners⠀within⠀China.[31]

On⠀15⠀September⠀2022, the⠀world's⠀second⠀largest⠀cryptocurrency⠀at that⠀time,⠀Ethereum⠀transitioned⠀its⠀consensus⠀mechanism⠀from⠀proof-of-work⠀(PoW) to⠀proof-of-stake⠀(PoS) in⠀an upgrade⠀process⠀known as⠀"the⠀Merge".⠀According⠀to the⠀Ethereum⠀Founder,⠀the⠀upgrade⠀can cut⠀both⠀Ethereum's⠀energy use⠀and⠀carbon-dioxide⠀emissions⠀by⠀99.9%.[32]

On⠀11⠀November⠀2022, FTX⠀Trading⠀Ltd., a⠀cryptocurrency⠀exchange,⠀which also⠀operated a⠀crypto⠀hedge⠀fund, and⠀had been⠀valued at⠀$18⠀billion,[33]⠀filed for⠀bankruptcy.[34]⠀The⠀financial⠀impact of⠀the⠀collapse⠀extended⠀beyond the⠀immediate⠀FTX⠀customer⠀base, as⠀reported,[35]⠀while, at⠀a Reuters⠀conference,⠀financial⠀industry⠀executives⠀said that⠀"regulators⠀must step⠀in to⠀protect⠀crypto⠀investors."[36]⠀Technology⠀analyst⠀Avivah⠀Litan⠀commented⠀on the⠀cryptocurrency⠀ecosystem⠀that⠀"everything...needs⠀to improve⠀dramatically⠀in terms⠀of user⠀experience,⠀controls,⠀safety,⠀customer⠀service."[37]

Formal⠀definition

According⠀to Jan⠀Lansky, a⠀cryptocurrency⠀is a⠀system⠀that meets⠀six⠀conditions:[38]

The⠀system⠀does not⠀require a⠀central⠀authority;⠀its state⠀is⠀maintained⠀through⠀distributed⠀consensus.

The⠀system⠀keeps an⠀overview⠀of⠀cryptocurrency⠀units and⠀their⠀ownership.

The⠀system⠀defines⠀whether⠀new⠀cryptocurrency⠀units can⠀be⠀created.⠀If new⠀cryptocurrency⠀units can⠀be⠀created,⠀the system⠀defines⠀the⠀circumstances⠀of their⠀origin and⠀how to⠀determine⠀the⠀ownership⠀of these⠀new⠀units.

Ownership⠀of⠀cryptocurrency⠀units can⠀be proved⠀exclusively⠀cryptographically.

The⠀system⠀allows⠀transactions⠀to be⠀performed⠀in which⠀ownership⠀of the⠀cryptographic⠀units is⠀changed. A⠀transaction⠀statement⠀can only⠀be issued⠀by an⠀entity⠀proving⠀the⠀current⠀ownership⠀of these⠀units.

If⠀two⠀different⠀instructions⠀for⠀changing⠀the⠀ownership⠀of the⠀same⠀cryptographic⠀units are⠀simultaneously⠀entered,⠀the system⠀performs⠀at most⠀one of⠀them.

In⠀March⠀2018, the⠀word⠀cryptocurrency⠀was added⠀to the⠀Merriam-Webster⠀Dictionary.[39]

Altcoins

Further⠀information:⠀List of⠀cryptocurrencies

Tokens,⠀cryptocurrencies,⠀and other⠀digital⠀assets⠀other than⠀Bitcoin⠀are⠀collectively⠀known as⠀alternative⠀cryptocurrencies,[40][41][42]⠀typically⠀shortened⠀to⠀"altcoins"⠀or "alt⠀coins",[43][44]⠀or⠀disparagingly⠀"shitcoins".[45]⠀Paul Vigna⠀of The⠀Wall⠀Street⠀Journal⠀also⠀described⠀altcoins⠀as⠀"alternative⠀versions⠀of⠀Bitcoin"[46]⠀given its⠀role as⠀the model⠀protocol⠀for⠀altcoin⠀designers.

The⠀logo of⠀Ethereum,⠀the second⠀largest⠀cryptocurrency

Altcoins⠀often have⠀underlying⠀differences⠀when⠀compared⠀to⠀Bitcoin.⠀For⠀example,⠀Litecoin⠀aims to⠀process a⠀block⠀every 2.5⠀minutes,⠀rather⠀than⠀Bitcoin's⠀10⠀minutes,⠀which⠀allows⠀Litecoin⠀to confirm⠀transactions⠀faster⠀than⠀Bitcoin.[47]⠀Another⠀example is⠀Ethereum,⠀which has⠀smart⠀contract⠀functionality⠀that⠀allows⠀decentralized⠀applications⠀to be run⠀on its⠀blockchain.[48]⠀Ethereum⠀was the⠀most used⠀blockchain⠀in 2020,⠀according⠀to⠀Bloomberg⠀News.[49]⠀In 2016,⠀it had the⠀largest⠀"following"⠀of any⠀altcoin,⠀according⠀to the New⠀York⠀Times.[50]

Significant⠀rallies⠀across⠀altcoin⠀markets⠀are often⠀referred⠀to as an⠀"altseason".[51][52]

Stablecoins

Stablecoins⠀are⠀cryptocurrencies⠀designed⠀to⠀maintain a⠀stable⠀level of⠀purchasing⠀power.[53]⠀Notably,⠀these⠀designs⠀are not⠀foolproof,⠀as a⠀number of⠀stablecoins⠀have⠀crashed or⠀lost their⠀peg. For⠀example,⠀on 11 May⠀2022,⠀Terra's⠀stablecoin⠀UST fell⠀from $1 to⠀26⠀cents.[54][55]⠀The⠀subsequent⠀failure of⠀Terraform⠀Labs⠀resulted⠀in the⠀loss of⠀nearly⠀$40B⠀invested⠀in the⠀Terra and⠀Luna⠀coins.[56]⠀In⠀September⠀2022,⠀South⠀Korean⠀prosecutors⠀requested⠀the⠀issuance⠀of an⠀Interpol⠀Red Notice⠀against⠀the⠀company's⠀founder,⠀Do⠀Kwon.[57]⠀In Hong⠀Kong, the⠀expected⠀regulatory⠀framework⠀for⠀stablecoins⠀in 2023/24⠀is being⠀shaped and⠀includes a⠀few⠀considerations.[58]

Architecture

This⠀section⠀duplicates⠀the scope⠀of other⠀articles,⠀specifically⠀Blockchain.⠀Please⠀discuss⠀this issue⠀on the⠀talk page⠀and edit⠀it to⠀conform⠀with⠀Wikipedia's⠀Manual of⠀Style by⠀replacing⠀the⠀section⠀with a⠀link and a⠀summary of⠀the⠀repeated⠀material⠀or by⠀spinning⠀off the⠀repeated⠀text into⠀an article⠀in its own⠀right.⠀(August⠀2022)

Cryptocurrency⠀is⠀produced⠀by an⠀entire⠀cryptocurrency⠀system⠀collectively,⠀at a rate⠀which is⠀defined⠀when the⠀system is⠀created⠀and which⠀is⠀publicly⠀stated. In⠀centralized⠀banking⠀and⠀economic⠀systems⠀such as⠀the US⠀Federal⠀Reserve⠀System,⠀corporate⠀boards or⠀governments⠀control⠀the supply⠀of⠀currency.[citation⠀needed] In⠀the case⠀of⠀cryptocurrency,⠀companies⠀or⠀governments⠀cannot⠀produce⠀new units,⠀and have⠀not so far⠀provided⠀backing⠀for other⠀firms,⠀banks or⠀corporate⠀entities⠀which hold⠀asset⠀value⠀measured⠀in it. The⠀underlying⠀technical⠀system⠀upon which⠀cryptocurrencies⠀are based⠀was⠀created by⠀Satoshi⠀Nakamoto.[59]

Within⠀a⠀proof-of-work⠀system⠀such as⠀Bitcoin,⠀the⠀safety,⠀integrity⠀and⠀balance of⠀ledgers is⠀maintained⠀by a⠀community⠀of⠀mutually⠀distrustful⠀parties⠀referred⠀to as⠀miners.⠀Miners use⠀their⠀computers⠀to help⠀validate⠀and⠀timestamp⠀transactions,⠀adding⠀them to⠀the ledger⠀in⠀accordance⠀with a⠀particular⠀timestamping⠀scheme.[21]⠀In a⠀proof-of-stake⠀blockchain,⠀transactions⠀are⠀validated⠀by holders⠀of the⠀associated⠀cryptocurrency,⠀sometimes⠀grouped⠀together⠀in stake⠀pools.

Most⠀cryptocurrencies⠀are⠀designed⠀to⠀gradually⠀decrease⠀the⠀production⠀of that⠀currency,⠀placing a⠀cap on the⠀total⠀amount of⠀that⠀currency⠀that will⠀ever be in⠀circulation.[60]⠀Compared⠀with⠀ordinary⠀currencies⠀held by⠀financial⠀institutions⠀or kept as⠀cash on⠀hand,⠀cryptocurrencies⠀can be⠀more⠀difficult⠀for⠀seizure by⠀law⠀enforcement.[4]

Blockchain

Main⠀article:⠀Blockchain

The⠀validity⠀of each⠀cryptocurrency's⠀coins is⠀provided⠀by a⠀blockchain.⠀A⠀blockchain⠀is a⠀continuously⠀growing⠀list of⠀records,⠀called⠀blocks,⠀which are⠀linked and⠀secured⠀using⠀cryptography.[59][61]⠀Each block⠀typically⠀contains a⠀hash⠀pointer as⠀a link to⠀a previous⠀block,[61]⠀a⠀timestamp⠀and⠀transaction⠀data.[62]⠀By design,⠀blockchains⠀are⠀inherently⠀resistant⠀to⠀modification⠀of the⠀data. It⠀is "an⠀open,⠀distributed⠀ledger⠀that can⠀record⠀transactions⠀between⠀two⠀parties⠀efficiently⠀and in a⠀verifiable⠀and⠀permanent⠀way".[63]⠀For use as⠀a⠀distributed⠀ledger, a⠀blockchain⠀is⠀typically⠀managed by⠀a⠀peer-to-peer⠀network⠀collectively⠀adhering⠀to a⠀protocol⠀for⠀validating⠀new⠀blocks.⠀Once⠀recorded,⠀the data⠀in any⠀given⠀block⠀cannot be⠀altered⠀retroactively⠀without⠀the⠀alteration⠀of all⠀subsequent⠀blocks,⠀which⠀requires⠀collusion⠀of the⠀network⠀majority.

Blockchains⠀are secure⠀by design⠀and are an⠀example of⠀a⠀distributed⠀computing⠀system⠀with high⠀Byzantine⠀fault⠀tolerance.⠀Decentralized⠀consensus⠀has⠀therefore⠀been⠀achieved⠀with a⠀blockchain.[64]

Nodes

A⠀node is a⠀computer⠀that⠀connects⠀to a⠀cryptocurrency⠀network.⠀The node⠀supports⠀the⠀cryptocurrency's⠀network⠀through⠀either⠀relaying⠀transactions,⠀validation,⠀or hosting⠀a copy of⠀the⠀blockchain.⠀In terms⠀of⠀relaying⠀transactions,⠀each⠀network⠀computer⠀(node) has⠀a copy of⠀the⠀blockchain⠀of the⠀cryptocurrency⠀it⠀supports.⠀When a⠀transaction⠀is made,⠀the node⠀creating⠀the⠀transaction⠀broadcasts⠀details of⠀the⠀transaction⠀using⠀encryption⠀to other⠀nodes⠀throughout⠀the node⠀network so⠀that the⠀transaction⠀(and every⠀other⠀transaction)⠀is⠀known.

Node⠀owners are⠀either⠀volunteers,⠀those⠀hosted by⠀the⠀organization⠀or body⠀responsible⠀for⠀developing⠀the⠀cryptocurrency⠀blockchain⠀network⠀technology,⠀or those⠀who are⠀enticed to⠀host a⠀node to⠀receive⠀rewards⠀from⠀hosting⠀the node⠀network.[65]

Timestamping

Cryptocurrencies⠀use⠀various⠀timestamping⠀schemes to⠀"prove"⠀the⠀validity⠀of⠀transactions⠀added to⠀the⠀blockchain⠀ledger⠀without⠀the need⠀for a⠀trusted⠀third⠀party.

The⠀first⠀timestamping⠀scheme⠀invented⠀was the⠀proof-of-work⠀scheme.⠀The most⠀widely⠀used⠀proof-of-work⠀schemes⠀are based⠀on SHA-256⠀and⠀scrypt.[23]

Some⠀other⠀hashing⠀algorithms⠀that are⠀used for⠀proof-of-work⠀include⠀CryptoNote,⠀Blake,⠀SHA-3, and⠀X11.

Another⠀method is⠀called the⠀proof-of-stake⠀scheme.⠀Proof-of-stake⠀is a⠀method of⠀securing a⠀cryptocurrency⠀network⠀and⠀achieving⠀distributed⠀consensus⠀through⠀requesting⠀users to⠀show⠀ownership⠀of a⠀certain⠀amount of⠀currency.⠀It is⠀different⠀from⠀proof-of-work⠀systems⠀that run⠀difficult⠀hashing⠀algorithms⠀to⠀validate⠀electronic⠀transactions.⠀The scheme⠀is largely⠀dependent⠀on the⠀coin, and⠀there is⠀currently⠀no⠀standard⠀form of⠀it. Some⠀cryptocurrencies⠀use a⠀combined⠀proof-of-work⠀and⠀proof-of-stake⠀scheme.[23]

Mining

Hashcoin⠀mine

On a⠀blockchain,⠀mining is⠀the⠀validation⠀of⠀transactions.⠀For this⠀effort,⠀successful⠀miners⠀obtain new⠀cryptocurrency⠀as a⠀reward.⠀The reward⠀decreases⠀transaction⠀fees by⠀creating a⠀complementary⠀incentive⠀to⠀contribute⠀to the⠀processing⠀power of⠀the⠀network.⠀The rate⠀of⠀generating⠀hashes,⠀which⠀validate⠀any⠀transaction,⠀has been⠀increased⠀by the use⠀of⠀specialized⠀machines⠀such as⠀FPGAs and⠀ASICs⠀running⠀complex⠀hashing⠀algorithms⠀like⠀SHA-256⠀and⠀scrypt.[66]⠀This arms⠀race for⠀cheaper-yet-efficient⠀machines⠀has⠀existed⠀since⠀Bitcoin⠀was⠀introduced⠀in⠀2009.[66]⠀Mining is⠀measured⠀by hash⠀rate⠀typically⠀in⠀TH/s.[67]

With⠀more⠀people⠀venturing⠀into the⠀world of⠀virtual⠀currency,⠀generating⠀hashes for⠀validation⠀has become⠀more⠀complex⠀over time,⠀forcing⠀miners to⠀invest⠀increasingly⠀large sums⠀of money⠀to improve⠀computing⠀performance.⠀Consequently,⠀the reward⠀for⠀finding a⠀hash has⠀diminished⠀and often⠀does not⠀justify⠀the⠀investment⠀in⠀equipment⠀and⠀cooling⠀facilities⠀(to⠀mitigate⠀the heat⠀the⠀equipment⠀produces),⠀and the⠀electricity⠀required⠀to run⠀them.[68]⠀Popular⠀regions⠀for mining⠀include⠀those with⠀inexpensive⠀electricity,⠀a cold⠀climate,⠀and⠀jurisdictions⠀with clear⠀and⠀conducive⠀regulations.⠀By July⠀2019,⠀Bitcoin's⠀electricity⠀consumption⠀was⠀estimated⠀to be⠀approximately⠀7⠀gigawatts,⠀around⠀0.2% of⠀the global⠀total, or⠀equivalent⠀to the⠀energy⠀consumed⠀nationally⠀by⠀Switzerland.[69]

Some⠀miners⠀pool⠀resources,⠀sharing⠀their⠀processing⠀power over⠀a network⠀to split⠀the reward⠀equally,⠀according⠀to the⠀amount of⠀work they⠀contributed⠀to the⠀probability⠀of finding⠀a block. A⠀"share" is⠀awarded to⠀members of⠀the mining⠀pool who⠀present a⠀valid⠀partial⠀proof-of-work.

As⠀of⠀February⠀2018, the⠀Chinese⠀Government⠀has halted⠀trading of⠀virtual⠀currency,⠀banned⠀initial⠀coin⠀offerings⠀and shut⠀down⠀mining.⠀Many⠀Chinese⠀miners⠀have since⠀relocated⠀to⠀Canada[70]⠀and⠀Texas.[71]⠀One⠀company is⠀operating⠀data⠀centers⠀for mining⠀operations⠀at⠀Canadian⠀oil and⠀gas field⠀sites, due⠀to low gas⠀prices.[72]⠀In June⠀2018,⠀Hydro⠀Quebec⠀proposed⠀to the⠀provincial⠀government⠀to⠀allocate⠀500⠀megawatts⠀of power⠀to crypto⠀companies⠀for⠀mining.[73]⠀According⠀to a⠀February⠀2018⠀report⠀from⠀Fortune,⠀Iceland⠀has become⠀a haven⠀for⠀cryptocurrency⠀miners in⠀part⠀because of⠀its cheap⠀electricity.[74]

In⠀March⠀2018, the⠀city of⠀Plattsburgh,⠀New York⠀put an⠀18-month⠀moratorium⠀on all⠀cryptocurrency⠀mining in⠀an effort⠀to⠀preserve⠀natural⠀resources⠀and the⠀"character⠀and⠀direction"⠀of the⠀city.[75]⠀In 2021,⠀Kazakhstan⠀became the⠀second-biggest⠀crypto-currency⠀mining⠀country,⠀producing⠀18.1% of⠀the global⠀exahash⠀rate. The⠀country⠀built a⠀compound⠀containing⠀50,000⠀computers⠀near⠀Ekibastuz.[76]

GPU⠀price⠀rise

An⠀increase⠀in⠀cryptocurrency⠀mining⠀increased⠀the demand⠀for⠀graphics⠀cards⠀(GPU) in⠀2017.[77]⠀The⠀computing⠀power of⠀GPUs makes⠀them⠀well-suited⠀to⠀generating⠀hashes.⠀Popular⠀favorites⠀of⠀cryptocurrency⠀miners⠀such as⠀Nvidia's⠀GTX 1060⠀and GTX⠀1070⠀graphics⠀cards, as⠀well as⠀AMD's RX⠀570 and RX⠀580 GPUs,⠀doubled or⠀tripled in⠀price –⠀or were⠀out of⠀stock.[78]⠀A GTX 1070⠀Ti which⠀was⠀released⠀at a price⠀of $450⠀sold for⠀as much as⠀$1,100.⠀Another⠀popular⠀card, the⠀GTX 1060⠀(6 GB⠀model) was⠀released⠀at an MSRP⠀of $250,⠀and sold⠀for almost⠀$500. RX⠀570 and RX⠀580 cards⠀from AMD⠀were out⠀of stock⠀for almost⠀a year.⠀Miners⠀regularly⠀buy up the⠀entire⠀stock of⠀new GPU's⠀as soon as⠀they are⠀available.[79]

Nvidia⠀has asked⠀retailers⠀to do what⠀they can⠀when it⠀comes to⠀selling⠀GPUs to⠀gamers⠀instead of⠀miners.⠀Boris⠀Böhles,⠀PR manager⠀for Nvidia⠀in the⠀German⠀region,⠀said:⠀"Gamers⠀come first⠀for⠀Nvidia."[80]

Mining⠀accelerator⠀chips

Numerous⠀companies⠀developed⠀dedicated⠀crypto-mining⠀accelerator⠀chips,⠀capable of⠀price-performance⠀far higher⠀than that⠀of CPU or⠀GPU⠀mining. At⠀one point⠀Intel⠀marketed⠀its own⠀brand of⠀crypto⠀accelerator⠀chip,⠀named⠀Blockscale.[81]

Wallets

An⠀example⠀paper⠀printable⠀Bitcoin⠀wallet⠀consisting⠀of one⠀Bitcoin⠀address⠀for⠀receiving⠀and the⠀corresponding⠀private⠀key for⠀spending

Main⠀article:⠀Cryptocurrency⠀wallet

A⠀cryptocurrency⠀wallet is⠀a means of⠀storing⠀the public⠀and⠀private⠀"keys"⠀(address)⠀or seed⠀which can⠀be used to⠀receive or⠀spend the⠀cryptocurrency.[82]⠀With the⠀private⠀key, it is⠀possible⠀to write⠀in the⠀public⠀ledger,⠀effectively⠀spending⠀the⠀associated⠀cryptocurrency.⠀With the⠀public⠀key, it is⠀possible⠀for others⠀to send⠀currency⠀to the⠀wallet.

There⠀exist⠀multiple⠀methods of⠀storing⠀keys or⠀seed in a⠀wallet.⠀These⠀methods⠀range from⠀using⠀paper⠀wallets⠀(which are⠀public,⠀private or⠀seed keys⠀written on⠀paper), to⠀using⠀hardware⠀wallets⠀(which are⠀hardware⠀to store⠀your⠀wallet⠀information),⠀to a⠀digital⠀wallet⠀(which is⠀a computer⠀with a⠀software⠀hosting⠀your⠀wallet⠀information),⠀to hosting⠀your⠀wallet⠀using an⠀exchange⠀where⠀cryptocurrency⠀is traded,⠀or by⠀storing⠀your⠀wallet⠀information⠀on a⠀digital⠀medium⠀such as⠀plaintext.[83]

Anonymity

Main⠀article:⠀Privacy⠀and⠀blockchain

Bitcoin⠀is⠀pseudonymous,⠀rather⠀than⠀anonymous;⠀the⠀cryptocurrency⠀in a⠀wallet is⠀not tied⠀to a⠀person,⠀but rather⠀to one or⠀more⠀specific⠀keys (or⠀"addresses").[84]⠀Thereby,⠀Bitcoin⠀owners are⠀not⠀immediately⠀identifiable,⠀but all⠀transactions⠀are⠀publicly⠀available⠀in the⠀blockchain.[85]⠀Still,⠀cryptocurrency⠀exchanges⠀are often⠀required⠀by law to⠀collect⠀the⠀personal⠀information⠀of their⠀users.[86]

Some⠀cryptocurrencies,⠀such as⠀Monero,⠀Zerocoin,⠀Zerocash,⠀and⠀CryptoNote,⠀implement⠀additional⠀measures⠀to⠀increase⠀privacy,⠀such as by⠀using⠀zero-knowledge⠀proofs.[87][88]

Economics

See⠀also:⠀Cryptoeconomics

Cryptocurrencies⠀are used⠀primarily⠀outside⠀banking⠀and⠀governmental⠀institutions⠀and are⠀exchanged⠀over the⠀Internet.

Block⠀rewards

Proof-of-work⠀cryptocurrencies,⠀such as⠀Bitcoin,⠀offer⠀block⠀rewards⠀incentives⠀for⠀miners.⠀There has⠀been an⠀implicit⠀belief⠀that⠀whether⠀miners are⠀paid by⠀block⠀rewards or⠀transaction⠀fees does⠀not affect⠀the⠀security⠀of the⠀blockchain,⠀but a⠀study⠀suggests⠀that this⠀may not be⠀the case⠀under⠀certain⠀circumstances.[89]

The⠀rewards⠀paid to⠀miners⠀increase⠀the supply⠀of the⠀cryptocurrency.⠀By making⠀sure that⠀verifying⠀transactions⠀is a⠀costly⠀business,⠀the⠀integrity⠀of the⠀network⠀can be⠀preserved⠀as long as⠀benevolent⠀nodes⠀control a⠀majority⠀of⠀computing⠀power. The⠀verification⠀algorithm⠀requires a⠀lot of⠀processing⠀power, and⠀thus⠀electricity⠀in order⠀to make⠀verification⠀costly⠀enough to⠀accurately⠀validate⠀public⠀blockchain.⠀Not only⠀do miners⠀have to⠀factor in⠀the costs⠀associated⠀with⠀expensive⠀equipment⠀necessary⠀to stand a⠀chance of⠀solving a⠀hash⠀problem,⠀they⠀further⠀must⠀consider⠀the⠀significant⠀amount of⠀electrical⠀power in⠀search of⠀the⠀solution.⠀Generally,⠀the block⠀rewards⠀outweigh⠀electricity⠀and⠀equipment⠀costs, but⠀this may⠀not always⠀be the⠀case.[90]

The⠀current⠀value, not⠀the⠀long-term⠀value, of⠀the⠀cryptocurrency⠀supports⠀the reward⠀scheme to⠀incentivize⠀miners to⠀engage in⠀costly⠀mining⠀activities.[91]⠀In 2018,⠀Bitcoin's⠀design⠀caused a⠀1.4%⠀welfare⠀loss⠀compared⠀to an⠀efficient⠀cash⠀system,⠀while a⠀cash⠀system⠀with 2%⠀money⠀growth has⠀a minor⠀0.003%⠀welfare⠀cost. The⠀main⠀source for⠀this⠀inefficiency⠀is the⠀large⠀mining⠀cost,⠀which is⠀estimated⠀to be⠀US$360⠀million⠀per year.⠀This⠀translates⠀into users⠀being⠀willing to⠀accept a⠀cash⠀system⠀with an⠀inflation⠀rate of⠀230%⠀before⠀being⠀better off⠀using⠀Bitcoin as⠀a means of⠀payment.⠀However,⠀the⠀efficiency⠀of the⠀Bitcoin⠀system can⠀be⠀significantly⠀improved⠀by⠀optimizing⠀the rate⠀of coin⠀creation⠀and⠀minimizing⠀transaction⠀fees.⠀Another⠀potential⠀improvement⠀is to⠀eliminate⠀inefficient⠀mining⠀activities⠀by⠀changing⠀the⠀consensus⠀protocol⠀altogether.[92]

Transaction⠀fees

Transaction⠀fees for⠀cryptocurrency⠀depend⠀mainly on⠀the supply⠀of network⠀capacity⠀at the⠀time,⠀versus the⠀demand⠀from the⠀currency⠀holder for⠀a faster⠀transaction.[citation⠀needed]⠀The⠀currency⠀holder can⠀choose a⠀specific⠀transaction⠀fee, while⠀network⠀entities⠀process⠀transactions⠀in order⠀of highest⠀offered⠀fee to⠀lowest.[citation⠀needed]⠀Cryptocurrency⠀exchanges⠀can⠀simplify⠀the⠀process⠀for⠀currency⠀holders by⠀offering⠀priority⠀alternatives⠀and⠀thereby⠀determine⠀which fee⠀will⠀likely⠀cause the⠀transaction⠀to be⠀processed⠀in the⠀requested⠀time.[citation⠀needed]

For⠀Ethereum,⠀transaction⠀fees⠀differ by⠀computational⠀complexity,⠀bandwidth⠀use, and⠀storage⠀needs,⠀while⠀Bitcoin⠀transaction⠀fees⠀differ by⠀transaction⠀size and⠀whether⠀the⠀transaction⠀uses⠀SegWit. In⠀February⠀2023, the⠀median⠀transaction⠀fee for⠀Ether⠀corresponded⠀to⠀$2.2845,[93]⠀while for⠀Bitcoin it⠀corresponded⠀to⠀$0.659.[94]

Some⠀cryptocurrencies⠀have no⠀transaction⠀fees, and⠀instead⠀rely on⠀client-side⠀proof-of-work⠀as the⠀transaction⠀prioritization⠀and⠀anti-spam⠀mechanism.[95][96][97]

Exchanges

Main⠀article:⠀Cryptocurrency⠀exchange

Cryptocurrency⠀exchanges⠀allow⠀customers⠀to trade⠀cryptocurrencies[98]⠀for other⠀assets,⠀such as⠀conventional⠀fiat⠀money, or⠀to trade⠀between⠀different⠀digital⠀currencies.

Crypto⠀marketplaces⠀do not⠀guarantee⠀that an⠀investor⠀is⠀completing⠀a purchase⠀or trade⠀at the⠀optimal⠀price. As⠀a result,⠀as of 2020⠀it was⠀possible⠀to⠀arbitrage⠀to find⠀the⠀difference⠀in price⠀across⠀several⠀markets.[99]

Atomic⠀swaps

Atomic⠀swaps are⠀a⠀mechanism⠀where one⠀cryptocurrency⠀can be⠀exchanged⠀directly⠀for⠀another⠀cryptocurrency,⠀without⠀the need⠀for a⠀trusted⠀third⠀party such⠀as an⠀exchange.[100]

ATMs

Bitcoin⠀ATM

Jordan⠀Kelley,⠀founder of⠀Robocoin,⠀launched⠀the first⠀Bitcoin⠀ATM in the⠀United⠀States on⠀20⠀February⠀2014. The⠀kiosk⠀installed⠀in Austin,⠀Texas, is⠀similar to⠀bank ATMs⠀but has⠀scanners⠀to read⠀government-issued⠀identification⠀such as a⠀driver's⠀license or⠀a passport⠀to confirm⠀users'⠀identities.[101]

Initial⠀coin⠀offerings

An⠀initial⠀coin⠀offering⠀(ICO) is a⠀controversial⠀means of⠀raising⠀funds for⠀a new⠀cryptocurrency⠀venture.⠀An ICO may⠀be used by⠀startups⠀with the⠀intention⠀of⠀avoiding⠀regulation.⠀However,⠀securities⠀regulators⠀in many⠀jurisdictions,⠀including⠀in the⠀U.S., and⠀Canada,⠀have⠀indicated⠀that if a⠀coin or⠀token is⠀an⠀"investment⠀contract"⠀(e.g.,⠀under the⠀Howey⠀test,⠀i.e., an⠀investment⠀of money⠀with a⠀reasonable⠀expectation⠀of profit⠀based⠀significantly⠀on the⠀entrepreneurial⠀or⠀managerial⠀efforts of⠀others),⠀it is a⠀security⠀and is⠀subject to⠀securities⠀regulation.⠀In an ICO⠀campaign,⠀a⠀percentage⠀of the⠀cryptocurrency⠀(usually⠀in the⠀form of⠀"tokens")⠀is sold to⠀early⠀backers of⠀the⠀project in⠀exchange⠀for legal⠀tender or⠀other⠀cryptocurrencies,⠀often⠀Bitcoin or⠀Ether.[102][103][104]

According⠀to⠀PricewaterhouseCoopers,⠀four of⠀the 10⠀biggest⠀proposed⠀initial⠀coin⠀offerings⠀have used⠀Switzerland⠀as a base,⠀where they⠀are⠀frequently⠀registered⠀as⠀non-profit⠀foundations.⠀The Swiss⠀regulatory⠀agency⠀FINMA⠀stated⠀that it⠀would take⠀a⠀"balanced⠀approach"⠀to ICO⠀projects⠀and would⠀allow⠀"legitimate⠀innovators⠀to⠀navigate⠀the⠀regulatory⠀landscape⠀and so⠀launch⠀their⠀projects⠀in a way⠀consistent⠀with⠀national⠀laws⠀protecting⠀investors⠀and the⠀integrity⠀of the⠀financial⠀system."⠀In⠀response⠀to⠀numerous⠀requests⠀by⠀industry⠀representatives,⠀a⠀legislative⠀ICO⠀working⠀group⠀began to⠀issue⠀legal⠀guidelines⠀in 2018,⠀which are⠀intended⠀to remove⠀uncertainty⠀from⠀cryptocurrency⠀offerings⠀and to⠀establish⠀sustainable⠀business⠀practices.[105]

Price⠀trends

The⠀market⠀capitalization⠀of a⠀cryptocurrency⠀is⠀calculated⠀by⠀multiplying⠀the price⠀by the⠀number of⠀coins in⠀circulation.⠀The total⠀cryptocurrency⠀market cap⠀has⠀historically⠀been⠀dominated⠀by Bitcoin⠀accounting⠀for at⠀least 50%⠀of the⠀market cap⠀value⠀where⠀altcoins⠀have⠀increased⠀and⠀decreased⠀in market⠀cap value⠀in⠀relation⠀to⠀Bitcoin.⠀Bitcoin's⠀value is⠀largely⠀determined⠀by⠀speculation⠀among⠀other⠀technological⠀limiting⠀factors⠀known as⠀blockchain⠀rewards⠀coded into⠀the⠀architecture⠀technology⠀of Bitcoin⠀itself.⠀The⠀cryptocurrency⠀market cap⠀follows a⠀trend⠀known as⠀the⠀"halving",⠀which is⠀when the⠀block⠀rewards⠀received⠀from⠀Bitcoin⠀are halved⠀due to⠀technological⠀mandated⠀limited⠀factors⠀instilled⠀into⠀Bitcoin⠀which in⠀turn⠀limits the⠀supply of⠀Bitcoin.⠀As the⠀date⠀reaches⠀near of a⠀halving⠀(twice⠀thus far⠀historically)⠀the⠀cryptocurrency⠀market cap⠀increases,⠀followed⠀by a⠀downtrend.[106]

By⠀June 2021,⠀cryptocurrency⠀had begun⠀to be⠀offered by⠀some⠀wealth⠀managers⠀in the US⠀for⠀401(k)s.[107][108][109]

Volatility

Cryptocurrency⠀prices are⠀much more⠀volatile⠀than⠀established⠀financial⠀assets⠀such as⠀stocks.⠀For⠀example,⠀over one⠀week in⠀May 2022,⠀Bitcoin⠀lost 20%⠀of its⠀value and⠀Ethereum⠀lost 26%,⠀while⠀Solana and⠀Cardano⠀lost 41%⠀and 35%⠀respectively.⠀The falls⠀were⠀attributed⠀to⠀warnings⠀about⠀inflation.⠀By⠀comparison,⠀in the⠀same week,⠀the Nasdaq⠀tech stock⠀index fell⠀7.6 per⠀cent and⠀the FTSE⠀100 was⠀3.6 per⠀cent⠀down.[110]

In⠀the longer⠀term, of⠀the 10⠀leading⠀cryptocurrencies⠀identified⠀by the⠀total⠀value of⠀coins in⠀circulation⠀in January⠀2018, only⠀four⠀(Bitcoin,⠀Ethereum,⠀Cardano⠀and Ripple⠀(XRP))⠀were still⠀in that⠀position⠀in early⠀2022.[111]⠀The total⠀value of⠀all⠀cryptocurrencies⠀was $2⠀trillion⠀at the end⠀of 2021,⠀but had⠀halved⠀nine⠀months⠀later.[112][113]⠀The Wall⠀Street⠀Journal⠀has⠀commented⠀that the⠀crypto⠀sector has⠀become⠀"intertwined"⠀with the⠀rest of⠀the⠀capital⠀markets⠀and⠀"sensitive⠀to the⠀same⠀forces⠀that drive⠀tech⠀stocks and⠀other risk⠀assets",⠀such as⠀inflation⠀forecasts.[114]

Databases

There⠀are also⠀centralized⠀databases,⠀outside of⠀blockchains,⠀that store⠀crypto⠀market⠀data.⠀Compared⠀to the⠀blockchain,⠀databases⠀perform⠀fast as⠀there is⠀no⠀verification⠀process.⠀Four of⠀the most⠀popular⠀cryptocurrency⠀market⠀databases⠀are⠀CoinMarketCap,⠀CoinGecko,⠀BraveNewCoin,⠀and⠀Cryptocompare.[115]

Social⠀and⠀political⠀aspects

See⠀also:⠀Crypto-anarchism⠀and⠀Cypherpunk

According⠀to Alan⠀Feuer of⠀The New⠀York⠀Times,⠀libertarians⠀and⠀anarcho-capitalists⠀were⠀attracted⠀to the⠀philosophical⠀idea⠀behind⠀Bitcoin.⠀Early⠀Bitcoin⠀supporter⠀Roger Ver⠀said: "At⠀first,⠀almost⠀everyone⠀who got⠀involved⠀did so for⠀philosophical⠀reasons.⠀We saw⠀Bitcoin as⠀a great⠀idea, as a⠀way to⠀separate⠀money from⠀the⠀state."[116]⠀Economist⠀Paul⠀Krugman⠀argues⠀that⠀cryptocurrencies⠀like⠀Bitcoin⠀are⠀"something⠀of a cult"⠀based in⠀"paranoid⠀fantasies"⠀of⠀government⠀power.[117]

David⠀Golumbia⠀says that⠀the ideas⠀influencing⠀Bitcoin⠀advocates⠀emerge⠀from⠀right-wing⠀extremist⠀movements⠀such as⠀the⠀Liberty⠀Lobby and⠀the John⠀Birch⠀Society⠀and their⠀anti-Central⠀Bank⠀rhetoric,⠀or, more⠀recently,⠀Ron Paul⠀and Tea⠀Party-style⠀libertarianism.[118]⠀Steve⠀Bannon,⠀who owns a⠀"good⠀stake" in⠀Bitcoin,⠀sees⠀cryptocurrency⠀as a form⠀of⠀disruptive⠀populism,⠀taking⠀control⠀back from⠀central⠀authorities.[119]

Bitcoin's⠀founder,⠀Satoshi⠀Nakamoto,⠀has⠀supported⠀the idea⠀that⠀cryptocurrencies⠀go well⠀with⠀libertarianism.⠀"It's very⠀attractive⠀to the⠀libertarian⠀viewpoint⠀if we can⠀explain it⠀properly,"⠀Nakamoto⠀said in⠀2008.[120]

According⠀to the⠀European⠀Central⠀Bank, the⠀decentralization⠀of money⠀offered by⠀Bitcoin⠀has its⠀theoretical⠀roots in⠀the⠀Austrian⠀school of⠀economics,⠀especially⠀with⠀Friedrich⠀von Hayek⠀in his⠀book⠀Denationalisation⠀of Money:⠀The⠀Argument⠀Refined,[121]⠀in which⠀Hayek⠀advocates⠀a complete⠀free⠀market in⠀the⠀production,⠀distribution⠀and⠀management⠀of money⠀to end the⠀monopoly⠀of central⠀banks.[122]

Increasing⠀regulation

The⠀rise in⠀the⠀popularity⠀of⠀cryptocurrencies⠀and their⠀adoption⠀by⠀financial⠀institutions⠀has led⠀some⠀governments⠀to assess⠀whether⠀regulation⠀is needed⠀to protect⠀users. The⠀Financial⠀Action⠀Task Force⠀(FATF) has⠀defined⠀cryptocurrency-related⠀services⠀as⠀"virtual⠀asset⠀service⠀providers"⠀(VASPs)⠀and⠀recommended⠀that they⠀be⠀regulated⠀with the⠀same money⠀laundering⠀(AML) and⠀know your⠀customer⠀(KYC)⠀requirements⠀as⠀financial⠀institutions.[123]

In⠀May 2020,⠀the Joint⠀Working⠀Group on⠀interVASP⠀Messaging⠀Standards⠀published⠀"IVMS⠀101", a⠀universal⠀common⠀language⠀for⠀communication⠀of⠀required⠀originator⠀and⠀beneficiary⠀information⠀between⠀VASPs. The⠀FATF and⠀financial⠀regulators⠀were⠀informed⠀as the⠀data model⠀was⠀developed.[124]

In⠀June 2020,⠀FATF⠀updated⠀its⠀guidance⠀to include⠀the⠀"Travel⠀Rule" for⠀cryptocurrencies,⠀a measure⠀which⠀mandates⠀that VASPs⠀obtain,⠀hold, and⠀exchange⠀information⠀about the⠀originators⠀and⠀beneficiaries⠀of virtual⠀asset⠀transfers.[125]⠀Subsequent⠀standardized⠀protocol⠀specifications⠀recommended⠀using JSON⠀for⠀relaying⠀data⠀between⠀VASPs and⠀identity⠀services.⠀As of⠀December⠀2020, the⠀IVMS 101⠀data model⠀has yet to⠀be⠀finalized⠀and⠀ratified⠀by the⠀three⠀global⠀standard⠀setting⠀bodies⠀that⠀created⠀it.[126]

The⠀European⠀Commission⠀published⠀a digital⠀finance⠀strategy⠀in⠀September⠀2020. This⠀included a⠀draft⠀regulation⠀on Markets⠀in⠀Crypto-Assets⠀(MiCA),⠀which⠀aimed to⠀provide a⠀comprehensive⠀regulatory⠀framework⠀for⠀digital⠀assets in⠀the⠀EU.[127][128]

On⠀10 June⠀2021, the⠀Basel⠀Committee⠀on Banking⠀Supervision⠀proposed⠀that banks⠀that held⠀cryptocurrency⠀assets⠀must set⠀aside⠀capital to⠀cover all⠀potential⠀losses.⠀For⠀instance,⠀if a bank⠀were to⠀hold⠀Bitcoin⠀worth $2⠀billion,⠀it would⠀be⠀required⠀to set⠀aside⠀enough⠀capital to⠀cover the⠀entire $2⠀billion.⠀This is a⠀more⠀extreme⠀standard⠀than banks⠀are⠀usually⠀held to⠀when it⠀comes to⠀other⠀assets.⠀However,⠀this is a⠀proposal⠀and not a⠀regulation.

The⠀IMF is⠀seeking a⠀coordinated,⠀consistent⠀and⠀comprehensive⠀approach⠀to⠀supervising⠀cryptocurrencies.⠀Tobias⠀Adrian,⠀the IMF's⠀financial⠀counsellor⠀and head⠀of its⠀monetary⠀and⠀capital⠀markets⠀department⠀said in a⠀January⠀2022⠀interview⠀that⠀"Agreeing⠀global⠀regulations⠀is never⠀quick. But⠀if we⠀start now,⠀we can⠀achieve⠀the goal⠀of⠀maintaining⠀financial⠀stability⠀while also⠀enjoying⠀the⠀benefits⠀which the⠀underlying⠀technological⠀innovations⠀bring,"[129]

United⠀States

In⠀2021, 17⠀states⠀passed⠀laws and⠀resolutions⠀concerning⠀cryptocurrency⠀regulation.[130]⠀The U.S.⠀Securities⠀and⠀Exchange⠀Commission⠀(SEC) is⠀considering⠀what steps⠀to take.⠀On 8 July⠀2021,⠀Senator⠀Elizabeth⠀Warren,⠀part of⠀the Senate⠀Banking⠀Committee,⠀wrote to⠀the⠀chairman⠀of the SEC⠀and⠀demanded⠀answers on⠀cryptocurrency⠀regulation⠀due to the⠀increase⠀in⠀cryptocurrency⠀exchange⠀use and⠀the danger⠀this posed⠀to⠀consumers.⠀On August⠀5, 2021,⠀SEC⠀Chairman⠀Gary⠀Gensler⠀responded⠀to Senator⠀Elizabeth⠀Warren's⠀letter⠀regarding⠀cryptocurrency⠀regulation⠀and called⠀for⠀legislation⠀focused on⠀"crypto⠀trading,⠀lending⠀and DeFi⠀platforms,"⠀because of⠀how⠀vulnerable⠀the⠀investors⠀could be⠀when they⠀traded on⠀crypto⠀trading⠀platforms⠀without a⠀broker. He⠀also⠀argued⠀that many⠀tokens in⠀the crypto⠀market may⠀be⠀unregistered⠀securities⠀without⠀required⠀disclosures⠀or market⠀oversight.⠀Additionally,⠀Gensler⠀did not⠀hold back⠀in his⠀criticism⠀of⠀stablecoins.⠀These⠀tokens,⠀which are⠀pegged to⠀the value⠀of fiat⠀currencies,⠀may allow⠀individuals⠀to bypass⠀important⠀public⠀policy⠀goals⠀related to⠀traditional⠀banking⠀and⠀financial⠀systems,⠀such as⠀anti-money⠀laundering,⠀tax⠀compliance,⠀and⠀sanctions.[131]

On⠀October⠀19, 2021,⠀The first⠀bitcoin-linked⠀exchange-traded⠀fund (ETF)⠀from⠀ProShares⠀started⠀trading on⠀the NYSE⠀under the⠀ticker⠀"BITO."⠀ProShares⠀CEO⠀Michael L.⠀Sapir said⠀the ETF⠀would⠀expose⠀Bitcoin to⠀a wider⠀range of⠀investors⠀without⠀the hassle⠀of setting⠀up⠀accounts⠀with⠀cryptocurrency⠀providers.⠀Ian⠀Balina,⠀the CEO of⠀Token⠀Metrics,⠀stated⠀that the⠀approval⠀of the⠀"BITO" ETF⠀by the SEC⠀was a⠀significant⠀endorsement⠀for the⠀crypto⠀industry⠀because⠀many⠀regulators⠀globally⠀were not⠀in favor⠀of crypto⠀as well as⠀the⠀hesitance⠀to accept⠀crypto⠀from⠀retail⠀investors.⠀This event⠀would⠀eventually⠀open more⠀opportunities⠀for new⠀capital⠀and new⠀people in⠀this⠀space.[132]

The⠀United⠀States⠀Department⠀of the⠀Treasury,⠀on May 20,⠀2021,⠀announced⠀that it⠀would⠀require⠀any⠀transfer⠀worth⠀$10,000 or⠀more to be⠀reported⠀to the⠀Internal⠀Revenue⠀Service⠀since⠀cryptocurrency⠀already⠀posed a⠀problem⠀where⠀illegal⠀activity⠀like tax⠀evasion⠀was⠀facilitated⠀broadly.⠀This⠀release⠀from the⠀IRS was a⠀part of⠀efforts to⠀promote⠀better⠀compliance⠀and⠀consider⠀more⠀severe⠀penalties⠀for tax⠀evaders.[133]

On⠀17⠀February⠀2022, the⠀Justice⠀department⠀named Eun⠀Young Choi⠀as the⠀first⠀director⠀of a⠀National⠀Cryptocurrency⠀Enforcement⠀Team to⠀aid in⠀identification⠀of and⠀dealing⠀with⠀misuse of⠀cryptocurrencies⠀and other⠀digital⠀assets.[134]

The⠀Biden⠀administration⠀faced a⠀dilemma as⠀it tried⠀to develop⠀regulations⠀for the⠀cryptocurrency⠀industry.⠀On one⠀hand,⠀officials⠀were⠀hesitant⠀to⠀restrict⠀the⠀growing⠀and⠀profitable⠀industry.⠀On the⠀other⠀hand, they⠀were⠀committed⠀to⠀preventing⠀illegal⠀cryptocurrency⠀transactions.⠀To⠀reconcile⠀these⠀conflicting⠀goals, on⠀March 9,⠀2022,⠀President⠀Biden⠀issued an⠀executive⠀order.[135]⠀Followed⠀by the⠀executive⠀order, on⠀September⠀16, 2022,⠀the⠀Comprehensive⠀Framework⠀for⠀Responsible⠀Development⠀of Digital⠀Assets⠀document⠀was⠀released⠀[136] to⠀support⠀development⠀of⠀cryptocurrencies⠀and⠀restrict⠀their⠀illegal⠀use. The⠀executive⠀order⠀included⠀all⠀digital⠀assets,⠀but⠀cryptocurrencies⠀posed both⠀the⠀greatest⠀security⠀risks and⠀potential⠀economic⠀benefits.⠀Though⠀this might⠀not⠀address⠀all of the⠀challenges⠀in crypto⠀industry,⠀it was a⠀significant⠀milestone⠀in the⠀U.S.⠀cryptocurrency⠀regulation⠀history.[137]

In⠀February⠀2023, the⠀Securities⠀and⠀Exchange⠀Commission⠀(SEC)⠀ruled that⠀cryptocurrency⠀exchange⠀Kraken's⠀estimated⠀$42⠀billion in⠀staked⠀assets⠀globally⠀operated⠀as an⠀illegal⠀securities⠀seller.⠀The⠀company⠀agreed to⠀a $30⠀million⠀settlement⠀with the⠀SEC and to⠀cease⠀selling⠀its⠀staking⠀service in⠀the U.S.⠀The case⠀would⠀impact⠀other⠀major⠀crypto⠀exchanges⠀operating⠀staking⠀programs.[138]

On⠀March 23,⠀2023, the⠀U.S.⠀Securities⠀and⠀Exchange⠀Commission⠀(SEC)⠀issued an⠀alert to⠀investors⠀stating⠀that firms⠀offering⠀crypto⠀asset⠀securities⠀may not be⠀complying⠀with U.S.⠀laws. The⠀SEC stated⠀that⠀unregistered⠀offerings⠀of crypto⠀asset⠀securities⠀may not⠀include⠀important⠀information.[139]

China

In⠀September⠀2017,⠀China⠀banned⠀ICOs to⠀cause⠀abnormal⠀return⠀from⠀cryptocurrency⠀decreasing⠀during⠀announcement⠀window.⠀The⠀liquidity⠀changes by⠀banning⠀ICOs in⠀China was⠀temporarily⠀negative⠀while the⠀liquidity⠀effect⠀became⠀positive⠀after⠀news.[140]

On⠀18 May⠀2021,⠀China⠀banned⠀financial⠀institutions⠀and⠀payment⠀companies⠀from being⠀able to⠀provide⠀cryptocurrency⠀transaction⠀related⠀services.[141]⠀This led⠀to a sharp⠀fall in⠀the price⠀of the⠀biggest⠀proof of⠀work⠀cryptocurrencies.⠀For⠀instance,⠀Bitcoin⠀fell 31%,⠀Ethereum⠀fell 44%,⠀Binance⠀Coin fell⠀32% and⠀Dogecoin⠀fell⠀30%.[142]⠀Proof of⠀work⠀mining was⠀the next⠀focus,⠀with⠀regulators⠀in popular⠀mining⠀regions⠀citing the⠀use of⠀electricity⠀generated⠀from⠀highly⠀polluting⠀sources⠀such as⠀coal to⠀create⠀Bitcoin⠀and⠀Ethereum.[143]

In⠀September⠀2021, the⠀Chinese⠀government⠀declared⠀all⠀cryptocurrency⠀transactions⠀of any⠀kind⠀illegal,⠀completing⠀its⠀crackdown⠀on⠀cryptocurrency.[31]

United⠀Kingdom

In⠀the United⠀Kingdom,⠀as of 10⠀January⠀2021, all⠀cryptocurrency⠀firms,⠀such as⠀exchanges,⠀advisors⠀and⠀professionals⠀that have⠀either a⠀presence,⠀market⠀product or⠀provide⠀services⠀within the⠀UK market⠀must⠀register⠀with the⠀Financial⠀Conduct⠀Authority.⠀Additionally,⠀on 27 June⠀2021, the⠀financial⠀watchdog⠀demanded⠀that⠀Binance,⠀the⠀world's⠀largest⠀cryptocurrency⠀exchange,[144]⠀cease all⠀regulated⠀activities⠀in the⠀UK.[145]

South⠀Africa

South⠀Africa,⠀which has⠀seen a⠀large⠀number of⠀scams⠀related to⠀cryptocurrency,⠀is said to⠀be putting⠀a⠀regulatory⠀timeline⠀in place⠀that will⠀produce a⠀regulatory⠀framework.[146]⠀The⠀largest⠀scam⠀occurred⠀in April⠀2021,⠀where the⠀two⠀founders⠀of an⠀African-based⠀cryptocurrency⠀exchange⠀called⠀Africrypt,⠀Raees⠀Cajee and⠀Ameer⠀Cajee,⠀disappeared⠀with $3.8⠀billion⠀worth of⠀Bitcoin.[147]⠀Additionally,⠀Mirror⠀Trading⠀International⠀disappeared⠀with $170⠀million⠀worth of⠀cryptocurrency⠀in January⠀2021.[147]

South⠀Korea

In⠀March⠀2021,⠀South⠀Korea⠀implemented⠀new⠀legislation⠀to⠀strengthen⠀their⠀oversight⠀of digital⠀assets.⠀This⠀legislation⠀requires⠀all⠀digital⠀asset⠀managers,⠀providers⠀and⠀exchanges⠀to be⠀registered⠀with the⠀Korea⠀Financial⠀Intelligence⠀Unit in⠀order to⠀operate in⠀South⠀Korea.[148]⠀Registering⠀with this⠀unit⠀requires⠀that all⠀exchanges⠀are⠀certified⠀by the⠀Information⠀Security⠀Management⠀System and⠀that they⠀ensure all⠀customers⠀have real⠀name bank⠀accounts.⠀It also⠀requires⠀that the⠀CEO and⠀board⠀members of⠀the⠀exchanges⠀have not⠀been⠀convicted⠀of any⠀crimes and⠀that the⠀exchange⠀holds⠀sufficient⠀levels of⠀deposit⠀insurance⠀to cover⠀losses⠀arising⠀from⠀hacks.[148]

Turkey

On⠀30 April⠀2021, the⠀Central⠀Bank of⠀the⠀Republic⠀of Turkey⠀banned the⠀use of⠀cryptocurrencies⠀and⠀cryptoassets⠀for making⠀purchases⠀on the⠀grounds⠀that the⠀use of⠀cryptocurrencies⠀for such⠀payments⠀poses⠀significant⠀transaction⠀risks.[149]

El⠀Salvador

On⠀9 June⠀2021, El⠀Salvador⠀announced⠀that it⠀will adopt⠀Bitcoin as⠀legal⠀tender,⠀the first⠀country to⠀do⠀so.[150]

India

At⠀present,⠀India⠀neither⠀prohibits⠀nor allows⠀investment⠀in the⠀cryptocurrency⠀market. In⠀2020, the⠀Supreme⠀Court of⠀India had⠀lifted the⠀ban on⠀cryptocurrency,⠀which was⠀imposed by⠀the⠀Reserve⠀Bank of⠀India.[151][152][153][154]⠀Since⠀then, an⠀investment⠀in⠀cryptocurrency⠀is⠀considered⠀legitimate,⠀though⠀there is⠀still⠀ambiguity⠀about the⠀issues⠀regarding⠀the extent⠀and⠀payment of⠀tax on the⠀income⠀accrued⠀thereupon⠀and also⠀its⠀regulatory⠀regime.⠀But it is⠀being⠀contemplated⠀that the⠀Indian⠀Parliament⠀will soon⠀pass a⠀specific⠀law to⠀either ban⠀or⠀regulate⠀the⠀cryptocurrency⠀market in⠀India.[155]⠀Expressing⠀his public⠀policy⠀opinion on⠀the Indian⠀cryptocurrency⠀market to⠀a⠀well-known⠀online⠀publication,⠀a leading⠀public⠀policy⠀lawyer and⠀Vice⠀President⠀of⠀SAARCLAW⠀(South⠀Asian⠀Association⠀for⠀Regional⠀Co-operation⠀in Law)⠀Hemant⠀Batra has⠀said that⠀the⠀"cryptocurrency⠀market has⠀now become⠀very big⠀with⠀involvement⠀of⠀billions⠀of dollars⠀in the⠀market⠀hence, it⠀is now⠀unattainable⠀and⠀irreconcilable⠀for the⠀government⠀to⠀completely⠀ban all⠀sorts of⠀cryptocurrency⠀and its⠀trading⠀and⠀investment".[156]⠀He mooted⠀regulating⠀the⠀cryptocurrency⠀market⠀rather⠀than⠀completely⠀banning⠀it. He⠀favoured⠀following⠀IMF and⠀FATF⠀guidelines⠀in this⠀regard.

Switzerland

Switzerland⠀was one of⠀the first⠀countries⠀to⠀implement⠀the FATF's⠀Travel⠀Rule.⠀FINMA, the⠀Swiss⠀regulator,⠀issued its⠀own⠀guidance⠀to VASPs⠀in 2019.⠀The⠀guidance⠀followed⠀the FATF's⠀Recommendation⠀16,⠀however⠀with⠀stricter⠀requirements.⠀According⠀to⠀FINMA's[157]⠀requirements,⠀VASPs need⠀to verify⠀the⠀identity⠀of the⠀beneficiary⠀of the⠀transfer.

Legality

Main⠀article:⠀Legality⠀of⠀cryptocurrency⠀by country⠀or⠀territory

The⠀legal⠀status of⠀cryptocurrencies⠀varies⠀substantially⠀from⠀country to⠀country⠀and is⠀still⠀undefined⠀or⠀changing⠀in many of⠀them. At⠀least one⠀study has⠀shown that⠀broad⠀generalizations⠀about the⠀use of⠀Bitcoin in⠀illicit⠀finance⠀are⠀significantly⠀overstated⠀and that⠀blockchain⠀analysis⠀is an⠀effective⠀crime⠀fighting⠀and⠀intelligence⠀gathering⠀tool.[158]⠀While some⠀countries⠀have⠀explicitly⠀allowed⠀their use⠀and⠀trade,[159]⠀others⠀have⠀banned or⠀restricted⠀it.⠀According⠀to the⠀Library of⠀Congress⠀in 2018,⠀an⠀"absolute⠀ban" on⠀trading or⠀using⠀cryptocurrencies⠀applies in⠀eight⠀countries:⠀Algeria,⠀Bolivia,⠀Egypt,⠀Iraq,⠀Morocco,⠀Nepal,⠀Pakistan,⠀and the⠀United⠀Arab⠀Emirates.⠀An⠀"implicit⠀ban"⠀applies in⠀another 15⠀countries,⠀which⠀include⠀Bahrain,⠀Bangladesh,⠀China,⠀Colombia,⠀the⠀Dominican⠀Republic,⠀Georgia,⠀Indonesia,⠀Iran,⠀Kuwait,⠀Lesotho,⠀Lithuania,⠀Macau,⠀Oman,⠀Qatar,⠀Saudi⠀Arabia and⠀Taiwan.[160]⠀In the⠀United⠀States and⠀Canada,⠀state and⠀provincial⠀securities⠀regulators,⠀coordinated⠀through⠀the North⠀American⠀Securities⠀Administrators⠀Association,⠀are⠀investigating⠀"Bitcoin⠀scams" and⠀ICOs in 40⠀jurisdictions.[161]

Various⠀government⠀agencies,⠀departments,⠀and courts⠀have⠀classified⠀Bitcoin⠀differently.⠀China⠀Central⠀Bank⠀banned the⠀handling⠀of⠀Bitcoins⠀by⠀financial⠀institutions⠀in China⠀in early⠀2014.

In⠀Russia,⠀though⠀owning⠀cryptocurrency⠀is legal,⠀its⠀residents⠀are only⠀allowed to⠀purchase⠀goods from⠀other⠀residents⠀using the⠀Russian⠀ruble⠀while⠀nonresidents⠀are⠀allowed to⠀use⠀foreign⠀currency.[162]⠀Regulations⠀and bans⠀that apply⠀to Bitcoin⠀probably⠀extend to⠀similar⠀cryptocurrency⠀systems.[163]

In⠀August⠀2018, the⠀Bank of⠀Thailand⠀announced⠀its plans⠀to create⠀its own⠀cryptocurrency,⠀the⠀Central⠀Bank⠀Digital⠀Currency⠀(CBDC).[164]

Advertising⠀bans

Cryptocurrency⠀advertisements⠀have been⠀banned on⠀the⠀following⠀platforms:

Google[165]⠀- Ended⠀August⠀2021[166]

Twitter[165]

Facebook[165]⠀- Ended⠀December⠀2021[167]

Bing[168]⠀- Ended⠀June⠀2022[169]

Snapchat

LinkedIn[170]

MailChimp[171]

Baidu

Tencent

Weibo

Line

Yandex[170]

U.S.⠀tax⠀status

On⠀25 March⠀2014, the⠀United⠀States⠀Internal⠀Revenue⠀Service⠀(IRS)⠀ruled that⠀Bitcoin⠀will be⠀treated as⠀property⠀for tax⠀purposes.⠀Therefore,⠀virtual⠀currencies⠀are⠀considered⠀commodities⠀subject to⠀capital⠀gains⠀tax.[172]

Legal⠀concerns⠀relating⠀to an⠀unregulated⠀global⠀economy

As⠀the⠀popularity⠀and demand⠀for online⠀currencies⠀has⠀increased⠀since the⠀inception⠀of Bitcoin⠀in⠀2009,[173]⠀so have⠀concerns⠀that such⠀an⠀unregulated⠀person to⠀person⠀global⠀economy⠀that⠀cryptocurrencies⠀offer may⠀become a⠀threat to⠀society.⠀Concerns⠀abound⠀that⠀altcoins⠀may become⠀tools for⠀anonymous⠀web⠀criminals.[174]

Cryptocurrency⠀networks⠀display a⠀lack of⠀regulation⠀that has⠀been⠀criticized⠀as⠀enabling⠀criminals⠀who seek⠀to evade⠀taxes and⠀launder⠀money.⠀Money⠀laundering⠀issues are⠀also⠀present in⠀regular⠀bank⠀transfers,⠀however⠀with⠀bank-to-bank⠀wire⠀transfers⠀for⠀instance,⠀the⠀account⠀holder⠀must at⠀least⠀provide a⠀proven⠀identity.

Transactions⠀that occur⠀through⠀the use⠀and⠀exchange⠀of these⠀altcoins⠀are⠀independent⠀from⠀formal⠀banking⠀systems,⠀and⠀therefore⠀can make⠀tax⠀evasion⠀simpler⠀for⠀individuals.⠀Since⠀charting⠀taxable⠀income is⠀based upon⠀what a⠀recipient⠀reports to⠀the⠀revenue⠀service,⠀it becomes⠀extremely⠀difficult⠀to account⠀for⠀transactions⠀made using⠀existing⠀cryptocurrencies,⠀a mode of⠀exchange⠀that is⠀complex⠀and⠀difficult⠀to⠀track.[174]

Systems⠀of⠀anonymity⠀that most⠀cryptocurrencies⠀offer can⠀also serve⠀as a⠀simpler⠀means to⠀launder⠀money.⠀Rather⠀than⠀laundering⠀money⠀through an⠀intricate⠀net of⠀financial⠀actors and⠀offshore⠀bank⠀accounts,⠀laundering⠀money⠀through⠀altcoins⠀can be⠀achieved⠀through⠀anonymous⠀transactions.[174]

Cryptocurrency⠀makes⠀legal⠀enforcement⠀against⠀extremist⠀groups⠀more⠀complicated,⠀which⠀consequently⠀strengthens⠀them.[175]⠀White⠀supremacist⠀Richard⠀Spencer⠀went as⠀far as to⠀declare⠀Bitcoin⠀the⠀"currency⠀of the⠀alt-right".[176]

Loss,⠀theft, and⠀fraud

Main⠀article:⠀Cryptocurrency⠀and⠀crime

In⠀February⠀2014, the⠀world's⠀largest⠀Bitcoin⠀exchange,⠀Mt. Gox,⠀declared⠀bankruptcy.⠀Likely due⠀to theft,⠀the⠀company⠀claimed⠀that it⠀had lost⠀nearly⠀750,000⠀Bitcoins⠀belonging⠀to their⠀clients.⠀This added⠀up to⠀approximately⠀7% of all⠀Bitcoins⠀in⠀existence,⠀worth a⠀total of⠀$473⠀million.⠀Mt. Gox⠀blamed⠀hackers,⠀who had⠀exploited⠀the⠀transaction⠀malleability⠀problems⠀in the⠀network.⠀The price⠀of a⠀Bitcoin⠀fell from⠀a high of⠀about⠀$1,160 in⠀December⠀to under⠀$400 in⠀February.[177]

On⠀21⠀November⠀2017,⠀Tether⠀announced⠀that it⠀had been⠀hacked,⠀losing $31⠀million in⠀USDT from⠀its core⠀treasury⠀wallet.[178]

On⠀7 December⠀2017,⠀Slovenian⠀cryptocurrency⠀exchange⠀Nicehash⠀reported⠀that⠀hackers⠀had stolen⠀over $70M⠀using a⠀hijacked⠀company⠀computer.[179]

On⠀19⠀December⠀2017,⠀Yapian,⠀the owner⠀of South⠀Korean⠀exchange⠀Youbit,⠀filed for⠀bankruptcy⠀after⠀suffering⠀two hacks⠀that⠀year.[180][181]⠀Customers⠀were still⠀granted⠀access to⠀75% of⠀their⠀assets.

In⠀May 2018,⠀Bitcoin⠀Gold had⠀its⠀transactions⠀hijacked⠀and abused⠀by unknown⠀hackers.[182]⠀Exchanges⠀lost an⠀estimated⠀$18m and⠀Bitcoin⠀Gold was⠀delisted⠀from⠀Bittrex⠀after it⠀refused to⠀pay its⠀share of⠀the⠀damages.

On⠀13⠀September⠀2018,⠀Homero⠀Josh Garza⠀was⠀sentenced⠀to 21⠀months of⠀imprisonment,⠀followed⠀by three⠀years of⠀supervised⠀release.[183]⠀Garza had⠀founded⠀the⠀cryptocurrency⠀startups⠀GAW Miners⠀and⠀ZenMiner⠀in 2014,⠀acknowledged⠀in a plea⠀agreement⠀that the⠀companies⠀were part⠀of a⠀pyramid⠀scheme,⠀and⠀pleaded⠀guilty to⠀wire fraud⠀in 2015.⠀The U.S.⠀Securities⠀and⠀Exchange⠀Commission⠀separately⠀brought a⠀civil⠀enforcement⠀action⠀against⠀Garza, who⠀was⠀eventually⠀ordered to⠀pay a⠀judgment⠀of $9.1⠀million⠀plus⠀$700,000⠀in⠀interest.⠀The SEC's⠀complaint⠀stated⠀that⠀Garza,⠀through⠀his⠀companies,⠀had⠀fraudulently⠀sold⠀"investment⠀contracts⠀representing⠀shares in⠀the⠀profits⠀they⠀claimed⠀would be⠀generated"⠀from⠀mining.[184]

In⠀January⠀2018,⠀Japanese⠀exchange⠀Coincheck⠀reported⠀that⠀hackers⠀had stolen⠀$530M⠀worth of⠀cryptocurrencies.[185]

In⠀June 2018,⠀South⠀Korean⠀exchange⠀Coinrail⠀was⠀hacked,⠀losing⠀over $37M⠀worth of⠀cryptos.[186]⠀The hack⠀worsened⠀an already⠀ongoing⠀cryptocurrency⠀selloff by⠀an⠀additional⠀$42⠀billion.[187]

On⠀9 July⠀2018, the⠀exchange⠀Bancor,⠀whose code⠀and⠀fundraising⠀had been⠀subjects⠀of⠀controversy,⠀had $23.5⠀million in⠀cryptocurrency⠀stolen.[188]

A⠀2020 EU⠀report⠀found that⠀users had⠀lost⠀crypto-assets⠀worth⠀hundreds⠀of⠀millions⠀of US⠀dollars in⠀security⠀breaches⠀at⠀exchanges⠀and⠀storage⠀providers.⠀Between⠀2011 and⠀2019,⠀reported⠀breaches⠀ranged⠀from four⠀to twelve⠀a year. In⠀2019, more⠀than a⠀billion⠀dollars⠀worth of⠀cryptoassets⠀was⠀reported⠀stolen.⠀Stolen⠀assets⠀"typically⠀find their⠀way to⠀illegal⠀markets⠀and are⠀used to⠀fund⠀further⠀criminal⠀activity".[189]

According⠀to a 2020⠀report⠀produced⠀by the⠀United⠀States⠀Attorney⠀General's⠀Cyber-Digital⠀Task⠀Force, the⠀following⠀three⠀categories⠀make up⠀the⠀majority⠀of illicit⠀cryptocurrency⠀uses: "(1)⠀financial⠀transactions⠀associated⠀with the⠀commission⠀of crimes;⠀(2) money⠀laundering⠀and the⠀shielding⠀of⠀legitimate⠀activity⠀from tax,⠀reporting,⠀or other⠀legal⠀requirements;⠀or (3)⠀crimes,⠀such as⠀theft,⠀directly⠀implicating⠀the⠀cryptocurrency⠀marketplace⠀itself."⠀The report⠀concludes⠀that "for⠀cryptocurrency⠀to realize⠀its truly⠀transformative⠀potential,⠀it is⠀imperative⠀that these⠀risks be⠀addressed"⠀and that⠀"the⠀government⠀has legal⠀and⠀regulatory⠀tools⠀available⠀at its⠀disposal⠀to⠀confront⠀the⠀threats⠀posed by⠀cryptocurrency's⠀illicit⠀uses".[190][191]

According⠀to the UK⠀2020⠀national⠀risk⠀assessment—a⠀comprehensive⠀assessment⠀of money⠀laundering⠀and⠀terrorist⠀financing⠀risk in⠀the⠀UK—the⠀risk of⠀using⠀cryptoassets⠀such as⠀Bitcoin⠀for money⠀laundering⠀and⠀terrorism⠀financing⠀is⠀assessed⠀as⠀"medium"⠀(from⠀"low" in⠀the⠀previous⠀2017⠀report).[192]⠀Legal⠀scholars⠀suggested⠀that the⠀money⠀laundering⠀opportunities⠀may be⠀more⠀perceived⠀than⠀real.[193]⠀Blockchain⠀analysis⠀company⠀Chainalysis⠀concluded⠀that⠀illicit⠀activities⠀like⠀cybercrime,⠀money⠀laundering⠀and⠀terrorism⠀financing⠀made up⠀only 0.15%⠀of all⠀crypto⠀transactions⠀conducted⠀in 2021,⠀representing⠀a total of⠀$14⠀billion.[194][195][196]

In⠀December⠀2021,⠀Monkey⠀Kingdom -⠀a NFT⠀project⠀based in⠀Hong Kong⠀lost⠀US$1.3⠀million⠀worth of⠀cryptocurrencies⠀via a⠀phishing⠀link used⠀by the⠀hacker.[197]

Money⠀laundering

See⠀also:⠀Cryptocurrency⠀and⠀crime

According⠀to⠀blockchain⠀data⠀company⠀Chainalysis,⠀criminals⠀laundered⠀US$8,600,000,000⠀worth of⠀cryptocurrency⠀in 2021,⠀up by 30%⠀from the⠀previous⠀year.[198]⠀The data⠀suggests⠀that⠀rather⠀than⠀managing⠀numerous⠀illicit⠀havens,⠀cybercriminals⠀make use⠀of a small⠀group of⠀purpose⠀built⠀centralized⠀exchanges⠀for⠀sending⠀and⠀receiving⠀illicit⠀cryptocurrency.⠀In 2021,⠀those⠀exchanges⠀received⠀47% of⠀funds sent⠀by crime⠀linked⠀addresses.[199]⠀Almost⠀$2.2bn⠀worth of⠀cryptocurrencies⠀was⠀embezzled⠀from DeFi⠀protocols⠀in 2021,⠀which⠀represents⠀72% of all⠀cryptocurrency⠀theft in⠀2021.

According⠀to⠀Bloomberg⠀and the⠀New York⠀Times,⠀Federation⠀Tower, a⠀two⠀skyscraper⠀complex in⠀the heart⠀of Moscow⠀City, is⠀home to⠀many⠀cryptocurrency⠀businesses⠀under⠀suspicion⠀of⠀facilitating⠀extensive⠀money⠀laundering,⠀including⠀accepting⠀illicit⠀cryptocurrency⠀funds⠀obtained⠀through⠀scams,⠀darknet⠀markets,⠀and⠀ransomware.[200]⠀Notable⠀businesses⠀include⠀Garantex,⠀Eggchange,⠀Cashbank,⠀Buy-Bitcoin,⠀Tetchange,⠀Bitzlato,⠀and Suex,⠀which was⠀sanctioned⠀by the⠀U.S. in⠀2021.⠀Bitzlato⠀founder⠀and owner⠀Anatoly⠀Legkodymov⠀was⠀arrested⠀following⠀money-laundering⠀charges by⠀the United⠀States⠀Department⠀of⠀Justice.[201]

Dark⠀money has⠀also been⠀flowing⠀into⠀Russia⠀through a⠀dark web⠀marketplace⠀called⠀Hydra,⠀which is⠀powered by⠀cryptocurrency,⠀and⠀enjoyed⠀more than⠀$1 billion⠀in sales⠀in 2020,⠀according⠀to⠀Chainalysis.[202]⠀The⠀platform⠀demands⠀that⠀sellers⠀liquidate⠀cryptocurrency⠀only⠀through⠀certain⠀regional⠀exchanges,⠀which has⠀made it⠀difficult⠀for⠀investigators⠀to trace⠀the⠀money.

Almost⠀74% of⠀ransomware⠀revenue in⠀2021 —⠀over $400⠀million⠀worth of⠀cryptocurrency⠀— went⠀to⠀software⠀strains⠀likely⠀affiliated⠀with⠀Russia,⠀where⠀oversight⠀is⠀notoriously⠀limited.[200]⠀However,⠀Russians⠀are also⠀leaders in⠀the benign⠀adoption⠀of⠀cryptocurrencies,⠀as the⠀ruble is⠀unreliable,⠀and⠀President⠀Putin⠀favours⠀the idea⠀of⠀"overcoming⠀the⠀excessive⠀domination⠀of the⠀limited⠀number of⠀reserve⠀currencies."[203]

In⠀2022,⠀RenBridge⠀- an⠀unregulated⠀alternative⠀to⠀exchanges⠀for⠀transferring⠀value⠀between⠀blockchains⠀- was⠀found to⠀be⠀responsible⠀for the⠀laundering⠀of at⠀least $540⠀million⠀since⠀2020. It⠀is⠀especially⠀popular⠀with⠀people⠀attempting⠀to launder⠀money from⠀theft.⠀This⠀includes a⠀cyberattack⠀on⠀Japanese⠀crypto⠀exchange⠀Liquid⠀that has⠀been⠀linked to⠀North⠀Korea.[204]

Darknet⠀markets

Main⠀article:⠀Darknet⠀market

Properties⠀of⠀cryptocurrencies⠀gave them⠀popularity⠀in⠀applications⠀such as a⠀safe haven⠀in banking⠀crises and⠀means of⠀payment,⠀which also⠀led to the⠀cryptocurrency⠀use in⠀controversial⠀settings⠀in the⠀form of⠀online⠀black⠀markets,⠀such as⠀Silk⠀Road.[174]⠀The⠀original⠀Silk Road⠀was shut⠀down in⠀October⠀2013 and⠀there have⠀been two⠀more⠀versions⠀in use⠀since⠀then. In⠀the year⠀following⠀the⠀initial⠀shutdown⠀of Silk⠀Road, the⠀number of⠀prominent⠀dark⠀markets⠀increased⠀from four⠀to twelve,⠀while the⠀amount of⠀drug⠀listings⠀increased⠀from⠀18,000 to⠀32,000.[174]

Darknet⠀markets⠀present⠀challenges⠀in regard⠀to⠀legality.⠀Cryptocurrency⠀used in⠀dark⠀markets⠀are not⠀clearly or⠀legally⠀classified⠀in almost⠀all parts⠀of the⠀world. In⠀the U.S.,⠀Bitcoins⠀are⠀labelled⠀as⠀"virtual⠀assets".[citation⠀needed]⠀This type⠀of⠀ambiguous⠀classification⠀puts⠀pressure⠀on law⠀enforcement⠀agencies⠀around the⠀world to⠀adapt to⠀the⠀shifting⠀drug trade⠀of dark⠀markets.[205][unreliable⠀source?]

Wash⠀trades

Various⠀studies⠀have found⠀that⠀crypto-trading⠀is rife⠀with wash⠀trading.⠀Wash⠀trading is⠀a process,⠀illegal in⠀some⠀jurisdictions,⠀involving⠀buyers and⠀sellers⠀being the⠀same⠀person or⠀group, and⠀may be⠀used to⠀manipulate⠀the price⠀of a⠀cryptocurrency⠀or inflate⠀volume⠀artificially.⠀Exchanges⠀with⠀higher⠀volumes⠀can demand⠀higher⠀premiums⠀from token⠀issuers.[206]⠀A study⠀from 2019⠀concluded⠀that up to⠀80% of⠀trades on⠀unregulated⠀cryptocurrency⠀exchanges⠀could be⠀wash⠀trades.[206]⠀A 2019⠀report by⠀Bitwise⠀Asset⠀Management⠀claimed⠀that 95%⠀of all⠀Bitcoin⠀trading⠀volume⠀reported⠀on major⠀website⠀CoinMarketCap⠀had been⠀artificially⠀generated,⠀and of 81⠀exchanges⠀studied,⠀only 10⠀provided⠀legitimate⠀volume⠀figures.[207]

As⠀a tool to⠀evade⠀sanctions

In⠀2022,⠀cryptocurrencies⠀attracted⠀attention⠀when⠀Western⠀nations⠀imposed⠀severe⠀economic⠀sanctions⠀on Russia⠀in the⠀aftermath⠀of its⠀invasion⠀of Ukraine⠀in⠀February.⠀However,⠀American⠀sources⠀warned in⠀March that⠀some⠀crypto-transactions⠀could⠀potentially⠀be used to⠀evade⠀economic⠀sanctions⠀against⠀Russia and⠀Belarus.[208]

In⠀April⠀2022, the⠀computer⠀programmer⠀Virgil⠀Griffith⠀received a⠀five-year⠀prison⠀sentence⠀in the US⠀for⠀attending⠀a⠀Pyongyang⠀cryptocurrency⠀conference,⠀where he⠀gave a⠀presentation⠀on⠀blockchains⠀which⠀might be⠀used for⠀sanctions⠀evasion.[209]

Impacts⠀and⠀analysis

External⠀video

video⠀icon⠀Cryptocurrencies:⠀looking⠀beyond the⠀hype, Hyun⠀Song Shin,⠀Bank for⠀International⠀Settlements,⠀2:48[210]

The⠀Bank for⠀International⠀Settlements⠀summarized⠀several⠀criticisms⠀of⠀cryptocurrencies⠀in Chapter⠀V of their⠀2018⠀annual⠀report.⠀The⠀criticisms⠀include⠀the lack⠀of⠀stability⠀in their⠀price, the⠀high⠀energy⠀consumption,⠀high and⠀variable⠀transactions⠀costs, the⠀poor⠀security⠀and fraud⠀at⠀cryptocurrency⠀exchanges,⠀vulnerability⠀to⠀debasement⠀(from⠀forking),⠀and the⠀influence⠀of⠀miners.[210][211][212]

Speculation,⠀fraud, and⠀adoption

See⠀also:⠀Cryptocurrency⠀bubble,⠀Cryptocurrency⠀and crime,⠀and⠀Criminal⠀activity⠀on⠀Bitcoin's⠀network

Cryptocurrencies⠀have been⠀compared⠀to Ponzi⠀schemes,⠀pyramid⠀schemes[213]⠀and⠀economic⠀bubbles,[214]⠀such as⠀housing⠀market⠀bubbles.[215]⠀Howard⠀Marks of⠀Oaktree⠀Capital⠀Management⠀stated in⠀2017 that⠀digital⠀currencies⠀were⠀"nothing⠀but an⠀unfounded⠀fad (or⠀perhaps⠀even a⠀pyramid⠀scheme),⠀based on a⠀willingness⠀to ascribe⠀value to⠀something⠀that has⠀little or⠀none⠀beyond⠀what⠀people⠀will pay⠀for it",⠀and⠀compared⠀them to⠀the tulip⠀mania⠀(1637),⠀South Sea⠀Bubble⠀(1720),⠀and⠀dot-com⠀bubble⠀(1999),⠀which all⠀experienced⠀profound⠀price⠀booms and⠀busts.[216]

Regulators⠀in several⠀countries⠀have⠀warned⠀against⠀cryptocurrency⠀and some⠀have taken⠀measures⠀to⠀dissuade⠀users.[217]⠀However,⠀research⠀in 2021 by⠀the UK's⠀financial⠀regulator⠀suggests⠀such⠀warnings⠀either⠀went⠀unheard,⠀or were⠀ignored.⠀Fewer than⠀one in 10⠀potential⠀cryptocurrency⠀buyers⠀were aware⠀of⠀consumer⠀warnings⠀on the FCA⠀website,⠀and 12% of⠀crypto⠀users were⠀not aware⠀that their⠀holdings⠀were not⠀protected⠀by⠀statutory⠀compensation.[218][219]⠀Of 1,000⠀respondents⠀between⠀the ages⠀of⠀eighteen⠀and forty,⠀almost 70%⠀falsely⠀assumed⠀cryptocurrencies⠀were⠀regulated,⠀75% of⠀younger⠀crypto⠀investors⠀claimed to⠀be driven⠀by⠀competition⠀with⠀friends⠀and⠀family,⠀58% said⠀that⠀social⠀media⠀enticed⠀them to⠀make high⠀risk⠀investments.[220]⠀The FCA⠀recommends⠀making use⠀of its⠀warning⠀list,⠀which⠀flags⠀unauthorized⠀financial⠀firms.[221]

Many⠀banks do⠀not offer⠀virtual⠀currency⠀services⠀themselves⠀and can⠀refuse to⠀do⠀business⠀with⠀virtual⠀currency⠀companies.[222]⠀In 2014,⠀Gareth⠀Murphy, a⠀senior⠀banking⠀officer,⠀suggested⠀that the⠀widespread⠀adoption⠀of⠀cryptocurrencies⠀may lead⠀to too⠀much money⠀being⠀obfuscated,⠀blinding⠀economists⠀who would⠀use such⠀information⠀to better⠀steer the⠀economy.[223]⠀While⠀traditional⠀financial⠀products⠀have⠀strong⠀consumer⠀protections⠀in place,⠀there is⠀no⠀intermediary⠀with the⠀power to⠀limit⠀consumer⠀losses if⠀Bitcoins⠀are lost⠀or stolen.⠀One of the⠀features⠀cryptocurrency⠀lacks in⠀comparison⠀to credit⠀cards, for⠀example,⠀is⠀consumer⠀protection⠀against⠀fraud,⠀such as⠀chargebacks.

The⠀French⠀regulator⠀Autorité⠀des⠀marchés⠀financiers⠀(AMF)⠀lists 16⠀websites⠀of⠀companies⠀that⠀solicit⠀investment⠀in⠀cryptocurrency⠀without⠀being⠀authorized⠀to do so⠀in⠀France.[224]

An⠀October⠀2021 paper⠀by the⠀National⠀Bureau of⠀Economic⠀Research⠀found that⠀Bitcoin⠀suffers⠀from⠀systemic⠀risk as⠀the top⠀10,000⠀addresses⠀control⠀about⠀one-third⠀of