reviews, charts, predict

OKX is a global cryptocurrency spot and derivatives exchange and the second biggest crypto exchange by trading volume, serving over 20 million people globally. It was founded by Star Xu in 2017, who is also the CEO as of 2023. The president is Hong Fang, and the CMO is Haider Rafique. OKX is owned by OK Group, which also owns crypto exchange Okcoin. 

OKX is a platform where investors can buy Bitcoin, Ethereum, and other cryptocurrencies. It currently operates in global markets including Hong Kong, United Arab Emirates, The Bahamas, and France. OKX has offices in Dubai, Turkey, Hong Kong, Silicon Valley, Singapore, and Australia. OKX has partnerships with brands and sports teams like Manchester City, McLaren, and the Australian Olympic Team.

2017: Company beginnings

The company was launched by Star Xu in 2017 and is headquartered in Seychelles.

On April 11, 2018, the company announced its expansion to Malta, given the country's efforts to provide a sound regulatory framework for blockchain businesses and digital asset exchanges. 

2018-2021: Exchange growth

In May 2018, OKX became the world's largest cryptocurrency exchange by reported turnover. 

In June 2018, the platform became one of the largest exchanges to launch and offer a cryptocurrency exchange white label service, where applicants must have solid industry experience and $2.5 million in their accounts. 

In November 2019, the Hong Kong Securities and Futures Commission (SFC) announced new digital asset exchange rules. According to Reuters, OKX said they do not expect to see many exchanges opting into the new regulations, but said the new rules are positive for the industry. 

On November 19, 2019, the cryptocurrency exchange said that they previously opened their Indian Telegram group a year before opening their Indian operations. 

On November 25, 2019, the company announced four major partners for its global utility token "OKB". 

According to Reuters, in February 2021 OKX saw its biggest trading volume in history, up 26% from the previous month to $188 billion. 

In June 2021, Baidu, Weibo and other Chinese Internet platforms blocked keywords such as "OKEx", "Binance" and "Huobi". 

2022–2023: Recent expansion

In January 2022, OKEx rebranded to OKX. In March 2022, OKX rejected calls to ban Russian crypto trading. 

In July 2022, OKX received a provisional virtual-asset license in Dubai, which would allow OKX to provide access to some products and services to investors in the United Arab Emirates. 

In December 2022, The Bahamas Economic Affairs Minister Michael Halkitis announced that OKX plans to increase its staff in The Bahamas to roughly 100 employees over the next three years. OKX plans to use The Bahamas as a regional hub for investors within the Caribbean and Latin America. 

In January 2023, OKX released its proof of reserves report showing it has the largest clean asset reserves of all large crypto exchanges. The cleanliness of assets is a metric developed by CryptoQuant to measure the reliance of an exchange on its native token. 

In February 2023, OKX, along with other exchanges, applied for licenses in Hong Kong. The licenses are a new requirement to operate in the city that go into effect in June. The new rulebook allows investors to trade larger tokens while offering safeguards like knowledge tests, appropriate risk profiling and reasonable limits on exposure. In an interview with Bloomberg, OKX President Hong Fang said OKX will continue building banking relationships in Hong Kong and different jurisdictions. According to Fang, OKX's business strategy will focus on building technology and maintaining long-term consistency instead of short-term trading profit. 

In March 2023, OKX applied for a virtual asset license in Hong Kong, two months before the city officially made crypto trading fully legal. OKX also announced plans to open an office in Australia. 

In April 2023, OKX joined Copper's ClearLoop Platform, allowing Copper's clients to trade on the OKX exchange while their digital assets remain within Copper’s infrastructure. In April 2023, OKX incorporated in France and has since announced plans to build out its European hub in Paris. In April 2023, OKX enabled the viewing and transfer of Bitcoin Ordinals (NFTs with data such as images or videos attached) within the OKX wallet. 

In May 2023, OKX announced that it plans to open an office in Turkey in the coming months. 

In June 2023, OKX became the first client to use Komainu Connect, a Nomura-backed regulated settlement and custody system that offers 24/7 trading. OKX received a license to offer spot trading in Dubai. 

Sponsorship and advertising

In March 2022, Manchester City announced a partnership with OKX as their official cryptocurrency partner and later in July, as the training kit sponsor for the men's and women's team. In February 2023, OKX announced a partnership with Manchester City players ?lkay G?ndo?an, Jack Grealish, R?ben Dias and Alex Greenwood to endorse a new fan offering based on exclusive ‘immersive metaverse experiences’ for the rest of the season. In July 2023, OKX signed a new deal reportedly worth ?55 million over three years to replace Nexen Tire as Manchester City's new shirt sleeve sponsor. 

In May 2022, OKX signed a multi-year sponsorship deal with McLaren as a primary partner. In September of the same year, OKX and McLaren unveiled a cyberpunk inspired livery by enhancing the iconic Fluro Papaya colorway with flourishes of pink and cyberpunk-inspired engine illustrations for the Singapore and Japanese Grand Prixs. The sponsorship deal was expanded in March 2023, making OKX an official primary partner of McLaren. The expanded deal includes increased branding presence on the McLaren F1 Team's race cars and OKX supporting the McLaren Shadow esports team. 

Tribeca Festival signed OKX as its new top sponsor in June 2022. At Tribeca events, OKX holds exclusivity for non-fungible token (NFT) marketplaces, cryptocurrency exchanges, usage of social tokens, and De-Fi and Game Fi trading categories. 

OKX debuted a multi-million dollar brand campaign in September 2022. The "What is OKX?" campaign featured professional football manager Pep Guardiola, Formula 1 driver Daniel Ricciardo and Olympic snowboarder Scotty James. The campaign’s focus was to expand awareness of OKX beyond Asia. 

OKX has also partnered with the Australian Olympic Team. 

In June 2023, OKX signed a sponsorship deal with LIV Golf team Majesticks GC through the 2024 season. 

Criticism and controversies

On February 24, 2018, the Dongguan Public Security Bureau officially opened a criminal case against OKX for possible "illegal futures trading" or, more seriously, "fraud". 

In March 2018, some major cryptocurrency exchanges were said to be charging up to one million dollars to have their tokens listed. In response to Insider, a PR manager for OKX denied this, saying there are no listing fees for any tokens. 

On July 30, 2018, a trader reportedly bought bitcoin futures with a $416 million notional value on margin before being forced by the exchange to liquidate his position at a large loss. The exchange injected 2,500 Bitcoins - worth about $18 million at current prices - into an insurance fund to help minimize the impact on clients. However, to cover for the outstanding amount, traders who had made an unrealized profit during the previous week still had to pay a clawback rate of 17 percent, the so-called "socialized clawback". 

Initially headquartered in Beijing, China, OKX is now under a blanket ban by Chinese regulators. On October 13, 2021, it issued a "Notice on Regulatory Policy in Mainland China", announcing that it would continue its policy of "withdrawing from the Chinese mainland market" and would not establish an office or team in the region. However, according to Caixin, although the exchange officially announced that it would no longer set up an office in Mainland China, it still has a large number of R&D staff working in the region, including engineers, who continue to work for OKX in the form of third-party outsourcing companies. 

OKX has experienced several downtime incidents, the most serious of which occurred on September 5, 2018, in which the exchange suddenly experienced problems such as app flashbacks, inability to log into the platform, and inability to view contracts. Subsequently, many investors crowded Beijing, where the institution was headquartered at the time, to defend their rights. On the evening of the 10th of the same month, the founder of the exchange, Star Xu, was summoned by the Shanghai public security authorities to assist in the investigation of alleged digital currency fraud. 

In October 2019, Star Xu and Yongxing Yang had a dispute. Yang broke the news to the media that several of his accounts on the OKX platform had been frozen and canceled for no reason, resulting in a reported loss in assets of about 800 million RMB and that a case against OKX and Star Xu by him and other investors had been officially filed in the Hangzhou Internet Court. 

On October 16, 2020 OKX temporarily suspended withdrawals following its founder's alleged arrest. On November 19, 2020 OKX announced that withdrawals would reopen and will resume on or before November 27. 

Bybit is a cryptocurrency exchange founded in 2018. Bybit is headquartered in Dubai, United Arab Emirates.

The company was founded in March 2018, with Ben Zhou as one of the co-founders. As of 2021, the Bybit exchange was blocked from operating in the United States, and in 2021 Bybit received warnings from the regulators in Japan and Canada. 

In November 2019, the company organized a Bitcoin trading competition called "BTC Brawl". In 2020 and 2021, Bybit ran a trading competition called "World Series of Trading". In February 2021, the company sponsored Red Bull Racing. 

Bybit started spot trading on July 15, 2021. In August 2021, Bybit announced sponsorship deals with esports organisations NAVI, Virtus.pro, Astralis and Alliance. 

A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may accept credit card payments, wire transfers or other forms of payment in exchange for digital currencies or cryptocurrencies. A cryptocurrency exchange can be a market maker that typically takes the bid–ask spreads as a transaction commission for its service or, as a matching platform, simply charges fees.

Some brokerages which also focus on other assets such as stocks, like Robinhood and eToro, let users purchase but not withdraw cryptocurrencies to cryptocurrency wallets. Dedicated cryptocurrency exchanges such as Binance and Coinbase do allow cryptocurrency withdrawals, however.

Operation

A cryptocurrency exchange can typically send cryptocurrency to a user's personal cryptocurrency wallet. Some can convert digital currency balances into anonymous prepaid cards which can be used to withdraw funds from ATMs worldwide while other digital currencies are backed by real-world commodities such as gold. 

The creators of digital currencies are typically independent of the digital currency exchange that facilitate trading in the currency. In one type of system, digital currency providers (DCP) are businesses that keep and administer accounts for their customers, but generally do not issue digital currency to those customers directly. Customers buy or sell digital currency from digital currency exchanges, who transfer the digital currency into or out of the customer's DCP account. Some exchanges are subsidiaries of DCP, but many are legally independent businesses. The denomination of funds kept in DCP accounts may be of a real or fictitious currency. 

A digital currency exchange can be a brick-and-mortar business or a strictly online business. As a brick-and-mortar business, it exchanges traditional payment methods and digital currencies. As an online business, it exchanges electronically transferred money and digital currencies. 

Often, the digital currency exchanges operate outside the Western countries to avoid regulation and prosecution. However, they do handle Western fiat currencies and maintain bank accounts in several countries to facilitate deposits in various national currencies. 

Decentralized exchanges such as Etherdelta, IDEX and HADAX do not store users' funds on the exchange, but instead facilitate peer-to-peer cryptocurrency trading. Decentralized exchanges are resistant to security problems that affect other exchanges, but as of mid 2018 suffer from low trading volumes. 

History

2004-2008 Pre crypto regulatory issues

In 2004 three Australian-based digital currency exchange businesses voluntarily shut down following an investigation by the Australian Securities and Investments Commission (ASIC). The ASIC viewed the services offered as legally requiring an Australian Financial Services License, which the companies lacked. 

In 2006, U.S.-based digital currency exchange business Gold Age Inc., a New York state business, was shut down by the U.S. Secret Service after operating since 2002. Business operators Arthur Budovsky and Vladimir Kats were indicted "on charges of operating an illegal digital currency exchange and money transmittal business" from their apartments, transmitting more than $30 million to digital currency accounts. Customers provided limited identity documentation, and could transfer funds to anyone worldwide, with fees sometimes exceeding $100,000. Budovsky and Kats were sentenced in 2007 to five years in prison "for engaging in the business of transmitting money without a license, a felony violation of state banking law", ultimately receiving sentences of five years' probation. 

In April 2007, the U.S. government ordered E-Gold administration to lock/block approximately 58 E-Gold accounts owned and used by The Bullion Exchange, AnyGoldNow, IceGold, GitGold, The Denver Gold Exchange, GoldPouch Express, 1MDC (a Digital Gold Currency, based on e-gold) and others, forcing G&SR (owner of OmniPay) to liquidate the seized assets.

A few weeks later, E-Gold faced four indictments. 

2008-2014 advent of crypto currency

Following the launch of a decentralized cryptocurrency bitcoin in 2008 and the subsequent introduction of other cryptocurrencies, many virtual platforms were created specifically for the exchange of decentralized cryptocurrencies. Their regulation differs from country to country.

In July 2008, WebMoney changed its rules, affecting many exchanges. Since that time it became prohibited[by whom?] to exchange WebMoney to the most popular e-currencies like E-gold, Liberty Reserve and others.

Also in July 2008 E-gold's three directors accepted a bargain with the prosecutors and pleaded guilty to one count of "conspiracy to engage in money laundering" and one count of the "operation of an unlicensed money transmitting business". E-gold ceased operations in 2009.

In 2013, Jean-Loup Richet, a research fellow at ESSEC ISIS, surveyed new money laundering techniques that cybercriminals were using in a report written for the United Nations Office on Drugs and Crime. A common approach to cyber money laundering was to use a digital currency exchanger service which converted dollars into Liberty Reserve and could be sent and received anonymously. The receiver could convert the Liberty Reserve currency back into cash for a small fee. In May 2013, digital currency exchanger Liberty Reserve was shut down after the alleged founder, Arthur Budovsky Belanchuk, and four others were arrested in Costa Rica, Spain, and New York "under charges for conspiracy to commit money laundering and conspiracy and operation of an unlicensed money transmitting business." Budovsky, a former U.S. citizen and naturalized Costa Rican, was convicted in connection with the 2006 Gold Age raid. More than $40 million in assets were placed under restraint pending forfeiture, and more than 30 Liberty Reserve exchanger domain names were seized. The company was estimated to have laundered $6 billion in criminal proceeds. 

2014 to present

In February 2014, Mt. Gox, the largest cryptocurrency exchange at the time, suspended trading, closed its website and exchange service, and filed for bankruptcy protection in Japan from creditors. In April 2014, the company began liquidation proceedings. This was the result of a large theft of bitcoins that were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011. 

In December 2021 the MyCryptoWallet exchange called in liquidators. 

In June 2022, the US Securities and Exchange Commission launched an enquiry into Binance as an entity and not into the crypto products it was dealing in. 

On 11 November 2022, FTX, which was at that time the third largest cryptocurrency exchange by volume and valued at $18 billion, entered bankruptcy proceedings in the US court system, following what the exchange termed as "a liquidity crisis". The financial impact of the collapse extended beyond the immediate FTX customer base, as reported, while, at a Reuters conference, financial industry executives said that "regulators must step in to protect crypto investors." Technology analyst Avivah Litan commented on the cryptocurrency ecosystem that "everything...needs to improve dramatically in terms of user experience, controls, safety, [and] customer service." On December 13, 2022, FTX founder and CEO Sam Bankman-Fried, after being extradited from the Bahamas, was charged by the US attorney’s office for the southern district of New York with fraud, conspiracy to commit money laundering, and conspiracy to defraud the US and violate campaign finance laws. 

Examples

In early 2018, Bloomberg News reported the largest cryptocurrency exchanges based on the volume and estimated revenues data collected by CoinMarketCap. Similar statistics was reported on Statista in a survey by Encrybit to understand cryptocurrency exchange problems. 

Other data points in the survey included the problems that cryptocurrency traders experience with cryptocurrency exchanges and the expectation of traders. Security and high trading fees are the top concerns. The exchanges are all fairly new and privately held. Several do not report basic information such as the names of the owners, financial data, or even the location of the business. 

Legislation

See also: Legality of cryptocurrency by country or territory

By 2016, several cryptocurrency exchanges operating in the European Union obtained licenses under the EU Payment Services Directive and the EU Electronic Money Directive. The adequacy of such licenses for the operation of a cryptocurrency exchange has not been judicially tested. The European Council and the European Parliament announced that they will issue regulations to impose stricter rules targeting exchange platforms.

In 2018, the U.S. Securities and Exchange Commission maintained that "if a platform offers trading of digital assets that are securities and operates as an "exchange," as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration". The Commodity Futures Trading Commission now permits the trading of cryptocurrency derivatives publicly. 

Among the Asian countries, Japan is more forthcoming and regulations mandate the need for a special license from the Financial Services Authority to operate a cryptocurrency exchange. China and Korea remain hostile, with China banning bitcoin miners and freezing bank accounts. While Australia is yet to announce its conclusive regulations on cryptocurrency, it does require its citizens to disclose their digital assets for capital gains tax. 

A cryptocurrency, crypto-currency, or crypto 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. 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. 

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. 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. 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. 

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). 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. 

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. 

History

See also: History of bitcoin

In 1983, American cryptographer David Chaum conceived of a type of cryptographic electronic money called ecash. Later, in 1995, he implemented it through Digicash, 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 and later in 1997 in The American Law Review. 

In 1998, Wei Dai described "b-money", an anonymous, distributed electronic cash system. Shortly thereafter, Nick Szabo described bit gold. 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. 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. 

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. 

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. Its final report was published in 2018, and it issued a consultation on cryptoassets and stablecoins in January 2021. 

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. 

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

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. 

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%. 

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

Formal definition

According to Jan Lansky, a cryptocurrency is a system that meets six conditions: 

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. 

Altcoins

Further information: List of cryptocurrencies

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

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. Another example is Ethereum, which has smart contract functionality that allows decentralized applications to be run on its blockchain. Ethereum was the most used blockchain in 2020, according to Bloomberg News. In 2016, it had the largest "following" of any altcoin, according to the New York Times. 

Significant rallies across altcoin markets are often referred to as an "altseason". 

Stablecoins

Stablecoins are cryptocurrencies designed to maintain a stable level of purchasing power. 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. The subsequent failure of Terraform Labs resulted in the loss of nearly $40B invested in the Terra and Luna coins. In September 2022, South Korean prosecutors requested the issuance of an Interpol Red Notice against the company's founder, Do Kwon. In Hong Kong, the expected regulatory framework for stablecoins in 2023/24 is being shaped and includes a few considerations. 

Architecture

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. 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. 

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. 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. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies can be more difficult for seizure by law enforcement. 

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. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. 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". 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. 

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. 

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. 

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. 

Mining

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. This arms race for cheaper-yet-efficient machines has existed since Bitcoin was introduced in 2009. Mining is measured by hash rate typically in TH/s. 

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. 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. 

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 and Texas. One company is operating data centers for mining operations at Canadian oil and gas field sites, due to low gas prices. In June 2018, Hydro Quebec proposed to the provincial government to allocate 500 megawatts of power to crypto companies for mining. According to a February 2018 report from Fortune, Iceland has become a haven for cryptocurrency miners in part because of its cheap electricity. 

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. 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. 

GPU price rise

An increase in cryptocurrency mining increased the demand for graphics cards (GPU) in 2017. 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. 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. 

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

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. 

Wallets

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. 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. 

Anonymity

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"). Thereby, Bitcoin owners are not immediately identifiable, but all transactions are publicly available in the blockchain. Still, cryptocurrency exchanges are often required by law to collect the personal information of their users. 

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

Economics

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. 

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. 

The current value, not the long-term value, of the cryptocurrency supports the reward scheme to incentivize miners to engage in costly mining activities. 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. 

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. The currency holder can choose a specific transaction fee, while network entities process transactions in order of highest offered fee to lowest.  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. 

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, while for Bitcoin it corresponded to $0.659. 

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

Exchanges

Cryptocurrency exchanges allow customers to trade cryptocurrencies 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. 

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. 

ATMs

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. 

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. 

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. 

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. 

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

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. 

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. The total value of all cryptocurrencies was $2 trillion at the end of 2021, but had halved nine months later. 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. 

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. 

Social and political aspects

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." Economist Paul Krugman argues that cryptocurrencies like Bitcoin are "something of a cult" based in "paranoid fantasies" of government power. 

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. Steve Bannon, who owns a "good stake" in Bitcoin, sees cryptocurrency as a form of disruptive populism, taking control back from central authorities. 

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. 

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, in which Hayek advocates a complete free market in the production, distribution and management of money to end the monopoly of central banks. 

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. 

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. 

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. 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. 

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. 

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," 

United States

In 2021, 17 states passed laws and resolutions concerning cryptocurrency regulation. 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. 

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. 

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. 

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. 

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. Followed by the executive order, on September 16, 2022, the Comprehensive Framework for Responsible Development of Digital Assets document was released 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. 

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. 

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. 

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. 

On 18 May 2021, China banned financial institutions and payment companies from being able to provide cryptocurrency transaction related services. 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%. 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. 

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

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, cease all regulated activities in the UK. 

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. 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. Additionally, Mirror Trading International disappeared with $170 million worth of cryptocurrency in January 2021. 

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. 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. 

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. 

El Salvador

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

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. 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. 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". 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 requirements, VASPs need to verify the identity of the beneficiary of the transfer.

Legality

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. While some countries have explicitly allowed their use and trade, 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. 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. 

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. Regulations and bans that apply to Bitcoin probably extend to similar cryptocurrency systems. 

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

Advertising bans

Cryptocurrency advertisements have been banned on the following platforms:

Google - Ended August 2021 

Twitter 

Facebook - Ended December 2021 

Bing - Ended June 2022 

Snapchat

LinkedIn 

MailChimp 

Baidu

Tencent

Weibo

Line

Yandex 

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. 

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, 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. 

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. 

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. 

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

Loss, theft, and fraud

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. 

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

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

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

In May 2018, Bitcoin Gold had its transactions hijacked and abused by unknown hackers. 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. 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. 

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

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

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

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". 

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". 

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). Legal scholars suggested that the money laundering opportunities may be more perceived than real. 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. 

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. 

Money laundering

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. 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. 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. 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. 

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. 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. 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." 

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. 

Darknet markets

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. 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. 

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".  This type of ambiguous classification puts pressure on law enforcement agencies around the world to adapt to the shifting drug trade of dark markets. 

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. A study from 2019 concluded that up to 80% of trades on unregulated cryptocurrency exchanges could be wash trades. 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. 

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. 

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. 

Impacts and analysis

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. 

Speculation, fraud, and adoption

Cryptocurrencies have been compared to Ponzi schemes, pyramid schemes and economic bubbles, such as housing market bubbles. 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. 

Regulators in several countries have warned against cryptocurrency and some have taken measures to dissuade users. 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. 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. The FCA recommends making use of its warning list, which flags unauthorized financial firms. 

Many banks do not offer virtual currency services themselves and can refuse to do business with virtual currency companies. 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. 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 Autorit? des march?s financiers (AMF) lists 16 websites of companies that solicit investment in cryptocurrency without being authorized to do so in France. 

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 all Bitcoin in circulation. It is even worse for Bitcoin miners, with 0.01% controlling 50% of the capacity. According to researcher Flipside Crypto, less than 2% of anonymous accounts control 95% of all available Bitcoin supply. This is considered risky as a great deal of the market is in the hands of a few entities.

A paper by John Griffin, a finance professor at the University of Texas, and Amin Shams, a graduate student found that in 2017 the price of Bitcoin had been substantially inflated using another cryptocurrency, Tether. 

Roger Lowenstein, author of "Bank of America: The Epic Struggle to Create the Federal Reserve," says in a New York Times story that FTX will face over $8 billion in claims. 

Non-fungible tokens

Non-fungible tokens (NFTs) are digital assets that represent art, collectibles, gaming, etc. Like crypto, their data is stored on the blockchain. NFTs are bought and traded using cryptocurrency. The Ethereum blockchain was the first place where NFTs were implemented, but now many other blockchains have created their own versions of NFTs. The popularity of NFTs has increased since 2021. 

Banks

As the first big Wall Street bank to embrace cryptocurrencies, Morgan Stanley announced on 17 March 2021 that they will be offering access to Bitcoin funds for their wealthy clients through three funds which enable Bitcoin ownership for investors with an aggressive risk tolerance. BNY Mellon on 11 February 2021 announced that it would begin offering cryptocurrency services to its clients. 

On 20 April 2021, Venmo added support to its platform to enable customers to buy, hold and sell cryptocurrencies. 

In October 2021, financial services company Mastercard announced it is working with digital asset manager Bakkt on a platform that would allow any bank or merchant on the Mastercard network to offer cryptocurrency services. 

Environmental impact

Mining for proof-of-work cryptocurrencies requires enormous amounts of electricity and consequently comes with a large carbon footprint due to causing greenhouse gas emissions. Proof-of-work blockchains such as Bitcoin, Ethereum, Litecoin, and Monero were estimated to have added between 3 million and 15 million tons of carbon dioxide (CO2) to the atmosphere in the period from 1 January 2016 to 30 June 2017. By November 2018, Bitcoin was estimated to have an annual energy consumption of 45.8TWh, generating 22.0 to 22.9 million tons of CO2, rivalling nations like Jordan and Sri Lanka. By the end of 2021, Bitcoin was estimated to produce 65.4 million tons of CO2, as much as Greece, and consume between 91 and 177 terawatt-hours annually. 

Critics have also identified a large electronic waste problem in disposing of mining rigs. Mining hardware is improving at a fast rate, quickly resulting in older generations of hardware. 

Bitcoin is the least energy-efficient cryptocurrency, using 707.6 kilowatt-hours of electricity per transaction. 

Before June 2021, China was the primary location for Bitcoin mining. However, due to concerns over power usage and other factors, China forced out Bitcoin operations, at least temporarily. As a result, the United States promptly emerged as the top global leader in the industry. An example of a gross amount of electronic waste associated with Bitcoin mining operations in the USA is a facility that located in Dalton, Georgia which is consuming nearly the same amount of electricity as the combined power usage of 97,000 households in its vicinity. Another example is that Riot Platforms operates a Bitcoin mining facility in Rockdale, Texas, which consumes approximately as much electricity as the nearby 300,000 households. This makes it the most energy-intensive Bitcoin mining operation in the United States. 

The world's second-largest cryptocurrency, Ethereum, uses 62.56 kilowatt-hours of electricity per transaction. XRP is the world's most energy efficient cryptocurrency, using 0.0079 kilowatt-hours of electricity per transaction. 

Although the biggest PoW blockchains consume energy on the scale of medium-sized countries, the annual power demand from proof-of-stake (PoS) blockchains is on a scale equivalent to a housing estate. The Times identified six "environmentally friendly" cryptocurrencies: Chia, IOTA, Cardano, Nano, Solarcoin and Bitgreen. Academics and researchers have used various methods for estimating the energy use and energy efficiency of blockchains. A study of the six largest proof-of-stake networks in May 2021 concluded:

Cardano has the lowest electricity use per node;

Polkadot has the lowest electricity use overall; and

Solana has the lowest electricity use per transaction.

In terms of annual consumption (kWh/yr), the figures were: Polkadot (70,237), Tezos (113,249), Avalanche (489,311), Algorand (512,671), Cardano (598,755) and Solana (1,967,930). This equates to Polkadot consuming 7 times the electricity of an average U.S. home, Cardano 57 homes and Solana 200 times as much. The research concluded that PoS networks consumed 0.001% the electricity of the Bitcoin network. University College London researchers reached a similar conclusion. 

Variable renewable energy power stations could invest in Bitcoin mining to reduce curtailment, hedge electricity price risk, stabilize the grid, increase the profitability of renewable energy power stations and therefore accelerate transition to sustainable energy. 

Technological limitations

There are also purely technical elements to consider. For example, technological advancement in cryptocurrencies such as Bitcoin result in high up-front costs to miners in the form of specialized hardware and software. Cryptocurrency transactions are normally irreversible after a number of blocks confirm the transaction. Additionally, cryptocurrency private keys can be permanently lost from local storage due to malware, data loss or the destruction of the physical media. This precludes the cryptocurrency from being spent, resulting in its effective removal from the markets. 

Academic studies

Main article: Ledger (journal)

In September 2015, the establishment of the peer-reviewed academic journal Ledger (ISSN 2379-5980) was announced. It covers studies of cryptocurrencies and related technologies, and is published by the University of Pittsburgh. 

The journal encourages authors to digitally sign a file hash of submitted papers, which will then be timestamped into the Bitcoin blockchain. Authors are also asked to include a personal Bitcoin address in the first page of their papers. 

Aid agencies

A number of aid agencies have started accepting donations in cryptocurrencies, including UNICEF. Christopher Fabian, principal adviser at UNICEF Innovation, said the children's fund would uphold donor protocols, meaning that people making donations online would have to pass checks before they were allowed to deposit funds. 

However, in 2021, there was a backlash against donations in Bitcoin because of the environmental emissions it caused. Some agencies stopped accepting Bitcoin and others turned to "greener" cryptocurrencies. The U.S. arm of Greenpeace stopped accepting bitcoin donations after seven years. It said: "As the amount of energy needed to run Bitcoin became clearer, this policy became no longer tenable." 

In 2022, the Ukrainian government raised over US$10,000,000 worth of aid through cryptocurrency following the 2022 Russian invasion of Ukraine. 

Criticism

Bitcoin has been characterized as a speculative bubble by eight winners of the Nobel Memorial Prize in Economic Sciences: Paul Krugman, Robert J. Shiller, Joseph Stiglitz, Richard Thaler, James Heckman, Thomas Sargent, Angus Deaton, and Oliver Hart; and by central bank officials including Alan Greenspan, Agust?n Carstens, V?tor Const?ncio, and Nout Wellink. 

The investors Warren Buffett and George Soros have respectively characterized it as a "mirage" and a "bubble"; while the business executives Jack Ma and J.P. Morgan Chase CEO Jamie Dimon have called it a "bubble" and a "fraud", respectively, although Jamie Dimon later said he regretted dubbing Bitcoin a fraud. BlackRock CEO Laurence D. Fink called Bitcoin an "index of money laundering". 

In June 2022, Bill Gates said that cryptocurrencies are "100% based on greater fool theory". 

Legal scholars criticize the lack of regulation, which hinders conflict resolution when crypto assets are at the center of a legal dispute, for example a divorce or an inheritance. In Switzerland, jurists generally deny that cryptocurrencies are objects that fall under property law, as cryptocurrencies do not belong to any class of legally defined objects (Typenzwang, the legal numerus clausus). Therefore, it is debated whether anybody could even be sued for embezzlement of cryptocurrency if he/she had access to someone's wallet. However, in the law of obligations and contract law, any kind of object would be legally valid, but the object would have to be tied to an identified counterparty. However, as the more popular cryptocurrencies can be freely and quickly exchanged into legal tender, they are financial assets and have to be taxed and accounted for as such. 

Crypto-related suicides

In 2018, an increase in crypto-related suicides was noticed after the cryptocurrency market crashed in August. The situation was particularly critical in Korea as crypto traders were on "suicide watch". A cryptocurrency forum on Reddit even started providing suicide prevention support to affected investors. 

The May 2022 collapse of the Luna currency operated by Terra also led to reports of suicidal investors in crypto-related subreddits. 

Virtual currency, or virtual money, is a digital currency that is largely unregulated, issued and usually controlled by its developers, and used and accepted electronically among the members of a specific virtual community. In 2014, the European Banking Authority defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically." A digital currency issued by a central bank is referred to as a central bank digital currency.

In 2012, the European Central Bank (ECB) defined virtual currency as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community". :?13?

In 2013, the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury, in contrast to its regulations defining currency as "the coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and  is customarily used and accepted as a medium of exchange in the country of issuance", also called "real currency" by FinCEN, defined virtual currency as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency". In particular, virtual currency does not have legal tender status in any jurisdiction. 

In 2014, the European Banking Authority defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically". 

In 2018, Directive (EU) 2018/843 of the European Parliament and of the Council entered into force. The Directive defines the term "virtual currencies" to mean "a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically". 

History of the term

In a 2013 congressional hearing on virtual currencies, Ben Bernanke said they "have been viewed as a form of 'electronic money' or area of payment system technology that has been evolving over the past 20 years", referencing a 1995 congressional hearing on the Future of Money before the Committee on Banking and Financial Services. The Internet currency Flooz was created in 1999. The term "virtual currency" appears to have been coined around 2009, paralleling the development of digital currencies and social gaming. 

Although the correct classification is "digital currency", the US government prefers and has uniformly adopted the term "virtual currency". The FinCEN was first, followed by the FBI in 2012, the General Accounting Office in 2013, as well as the government agencies testifying at the November 2013 US Senate hearing on bitcoin, including the Department of Homeland Security, the US Securities and Exchange Commission, the Office of the Attorney General. 

Limits on being currency

Attributes of a real currency, as defined in 2011 in the Code of Federal Regulations, such as real paper money and real coins are simply that they act as legal tender and circulate "customarily". 

The IRS decided in March 2014, to treat bitcoin and other virtual currencies as property for tax purposes, not as currency. Some have suggested that this makes bitcoins not fungible—that is one bitcoin is not identical to another bitcoin, unlike one gallon of crude oil being identical to another gallon of crude oil—making bitcoin unworkable as a currency. Others have stated that a measure like accounting on average cost basis would restore fungibility to the currency. 

Categorization by currency flow

Closed virtual currencies

Main article: Virtual economy

Virtual currencies have been called "closed" or "fictional currency" when they have no official connection to the real economy, for example, currencies in massively multiplayer online role-playing games such as World of Warcraft. While there may be a grey market for exchanging such currencies or other virtual assets for real-world assets, this is usually forbidden by the games' terms of service.

Virtual currencies with currency flow into one direction

This type of currency, units of which may also be circulated as (printed) coupons, stamps or reward points, has been known for a long time in the form of customer incentive programs or loyalty programs. A coupon loses its face value when redeemed for an eligible asset or service (hence: flow in one direction), may be valid for only a limited time and subject to other restrictions set by the issuer. The business issuing the coupon functions as a central authority.  Coupons remained unchanged for 100 years until new technology enabling credit cards became more common in the 1980s, and credit card rewards were invented. The latest incarnation drives the increase of internet commerce, online services, development of online communities and games. Here virtual or game currency can be bought, but not exchanged back into real money. The virtual currency is akin to a coupon. Examples are frequent flyer programs by various airlines, Microsoft Points, Nintendo Points, Facebook Credits and Amazon Coin.

Convertible virtual currencies

A virtual currency that can be bought with and sold back is called a convertible currency. A virtual currency can be decentralized, for example bitcoin, a cryptocurrency. Transacting or even holding convertible virtual currency may be illegal in particular jurisdictions and to particular national citizens at particular times and the transactor/recipient/facilitator liable for prosecution by the State. 

Centralized versus decentralized

FinCEN defined centralized virtual currencies in 2013 as virtual currencies that have a "centralized repository", similar to a central bank, and a "central administrator".

A decentralized currency was defined by the US Department of Treasury as a "currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort". Rather than relying on confidence in a central authority, it depends instead on a distributed system of trust. 

Money matrix

Digital currency is a particular form of currency which is electronically transferred and stored, i.e., distinct from physical currency, such as coins or banknotes. According to the European Central Bank, virtual currencies are "generally digital", although their enduring precursor, the coupon, for example, is physical. 

A cryptocurrency is a digital currency using cryptography to secure transactions and to control the creation of new currency units. Since not all virtual currencies use cryptography, not all virtual currencies are cryptocurrencies.

Cryptocurrencies are not always legal tender, but some countries have moved to regulate cryptocurrency-related services as they would financial institutions. Ecuador is the first country attempting a government run a cryptography-free digital currency; during the introductory phase from Christmas Eve 2014 until mid February 2015 people can open accounts and change passwords. At the end of February 2015 transactions of electronic money will be possible. 

Estonia has been exploring various possibilities for blockchain technology, such as Estcoin and the use of crypto tokens within its e-residency program, which gives both Estonians and foreigners a digital form of identification. 

Regulation

Virtual currencies pose challenges for central banks, financial regulators, departments or ministries of finance, as well as fiscal authorities and statistical authorities. Gareth Murphy, Central Bank of Ireland, described the regulatory challenges posed by virtual currencies as relating to:

Economic statistics

Monetary and exchange rate policy

Tax leakage

Payment systems and settlement infrastructure

Consumer protection

Anti-money laundering

Impact of financial regulation on financial service providers

United States

Commodity Futures Trading Commission guidance

The US Commodity Futures Trading Commission (CFTC) has determined virtual currencies are properly defined as commodities in 2015. The CFTC warned investors against pump and dump schemes that use virtual currencies. 

Internal Revenue Service guidance

The US Internal Revenue Service (IRS) ruling Notice 2014-21 defines any virtual currency, cryptocurrency and digital currency as property; gains and losses are taxable within standard property policies.

Treasury guidance

On 20 March 2013, the Financial Crimes Enforcement Network issued a guidance to clarify how the US Bank Secrecy Act applied to persons creating, exchanging and transmitting virtual currencies. 

Securities and Exchange Commission guidance

In May 2014 the US Securities and Exchange Commission (SEC) "warned about the hazards of bitcoin and other virtual currencies".

State regulations

New York state regulation

In July 2014, the New York State Department of Financial Services proposed the most comprehensive regulation of virtual currencies to date commonly referred to as a BitLicense. Unlike the US federal regulators it has gathered input from bitcoin supporters and the financial industry through public hearings and a comment period until October 21, 2014, to customize the rules. The proposal, per NY DFS press release "sought to strike an appropriate balance that helps protect consumers and root out illegal activity". It has been criticized by smaller companies to favor established institutions, and Chinese bitcoin exchanges have complained that the rules are "overly broad in its application outside the United States". 

European Union

European Central Bank guidance

In February 2015 the ECB concluded "Virtual currency schemes, such as Bitcoin, are not full forms of money as usually defined in economic literature, nor are virtual currencies money or currency from a legal perspective. Nevertheless, Virtual currency may substitute for banknotes and coins, scriptural money and e-money in certain payment situations". In a May 2019 report ECB expressed concerns that "crypto assets provide opportunity for anonymous participation in illegal activities of all sorts". 

Legal classification

In the European Union, a legal definition of cryptocurrency was introduced to be broadly be regarded as “a digital representation of value that can be digitally transferred, stored or traded and is accepted… as a medium of exchange” in the 5th Anti Money Laundering Directive. This also means that within the European Union cryptocurrencies and cryptocurrency exchanges are considered “obliged entities” subject to the European Union's Anti-Money Laundering Directives, and face the same CFT/AML regulations. As of July 20, 2021, the European Commission has proposed replacing the previous Directive 2015/849/EU with provisions from the 6th Anti-Money Laundering Directive. 

Virtual currencies are defined as "a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically".

The fact that European Union lawmakers regard Bitcoin as the archetypal example of virtual currencies and that Bitcoin therefore fulfills all elements of the legal definition can serve as an anchor point for interpretation. Basically, the definition consists of six elements: 

Virtual currencies are digital representations of value. Thus, digital assets must have a certain value in business transactions in order to be considered virtual currencies under EU law.

Virtual currencies are not issued or guaranteed by a central bank or public authority. Issuing is the first placement of a digital asset in the market. Guaranteeing is the assumption of third-party or own liabilities. If digital assets are issued or guaranteed by a central bank or public body, they are not virtual currencies.

Virtual currencies can be attached to a legal currency. Attachment is a legal or economic mechanism that links the value of the digital asset to a legal currency.

Virtual currencies do not have the legal status of a currency or money. This depends on the status of a digital asset in the EU or a Member State.

Virtual currencies are accepted by natural or legal persons as a means of exchange. This is the core element of the legal definition: The term "medium of exchange" is best understood in negative terms and requires that a digital asset is neither e-money as defined by the EU E-Money Directive, nor a payment service or payment instrument as defined by EU Payment Services Directive II, nor any other means of payment as defined by EU Capital Requirements Directive IV. The concept of acceptance requires a certain minimum of actual demand for the digital asset on the market to be considered a virtual currency.

Virtual currencies can be transferred, stored and traded electronically. Only digital assets that can be transferred electronically to a person (transfer), whereby the owner also has the option of preventing transfers without his intervention (storage), fulfill this concept.

The authors of the legal definition under EU law primarily had blockchain technology in mind – and Bitcoin as an archetypal form. Against this background, it is remarkable that the definition does not contain any elements tailored to the use of a particular technology. On the contrary, the legal definition is strikingly technology neutral.

In a CNN interview, the financial crime expert Veit Buetterlin explained that the raise of the cryptocurrency market opened creative channels for terror groups to finance themselves. 

Bitcoin is a cryptocurrency, a digital asset that uses cryptography to control its creation and management rather than relying on central authorities.  Originally designed as a medium of exchange, Bitcoin is now primarily regarded as a store of value. The history of bitcoin started with its invention and implementation by Satoshi Nakamoto, who integrated many existing ideas from the cryptography community. Over the course of bitcoin's history, it has undergone rapid growth to become a significant store of value both on- and offline. From the mid-2010s, some businesses began accepting bitcoin in addition to traditional currencies. 

Background

Prior to the release of bitcoin, there were a number of digital cash technologies, starting with the issuer-based ecash protocols of David Chaum and Stefan Brands.    The idea that solutions to computational puzzles could have some value was first proposed by cryptographers Cynthia Dwork and Moni Naor in 1992. The idea was independently rediscovered by Adam Back who developed hashcash, a proof-of-work scheme for spam control in 1997.  The first proposals for distributed digital scarcity-based cryptocurrencies were Wei Dai's b-money  and Nick Szabo's bit gold.   Hal Finney developed reusable proof of work (RPOW) using hashcash as its proof of work algorithm. 

In the bit gold proposal which proposed a collectible market-based mechanism for inflation control, Nick Szabo also investigated some additional aspects including a Byzantine fault-tolerant agreement protocol based on quorum addresses to store and transfer the chained proof-of-work solutions, which was vulnerable to Sybil attacks, though. 

Creation

On the 18th of August 2008, the domain name bitcoin.org was registered.  Later that year, on 31 October, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System  was posted to a cryptography mailing list.  This paper detailed methods of using a peer-to-peer network to generate what was described as "a system for electronic transactions without relying on trust".    On 3 January 2009, the bitcoin network came into existence with Satoshi Nakamoto mining the genesis block of bitcoin (block number 0), which had a reward of 50 bitcoins.   Embedded in the genesis block was the text:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks 

The text refers to a headline in The Times published on 3 January 2009.  This note has been interpreted as both a timestamp of the genesis date and a derisive comment on the instability caused by fractional-reserve banking. :?18?

The first open source bitcoin client was released on 9 January 2009, hosted at SourceForge.  

One of the first supporters, adopters, contributors to bitcoin and receiver of the first bitcoin transaction was programmer Hal Finney. Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world's first bitcoin transaction on 12 January 2009 (bloc 170).   Other early supporters were Wei Dai, creator of bitcoin predecessor b-money, and Nick Szabo, creator of bitcoin predecessor bit gold. 

In the early days, Nakamoto is estimated to have mined 1 million bitcoins.  Before disappearing from any involvement in bitcoin, Nakamoto in a sense handed over the reins to developer Gavin Andresen, who then became the bitcoin lead developer at the Bitcoin Foundation, the 'anarchic' bitcoin community's closest thing to an official public face. 

Satoshi Nakamoto

"Satoshi Nakamoto" is presumed to be a pseudonym for the person or people who designed the original bitcoin protocol in 2008 and launched the network in 2009. Nakamoto was responsible for creating the majority of the official bitcoin software and was active in making modifications and posting technical information on the bitcoin forum.  There has been much speculation as to the identity of Satoshi Nakamoto with suspects including Dai, Szabo, and Finney – and accompanying denials.   The possibility that Satoshi Nakamoto was a computer collective in the European financial sector has also been discussed. 

Investigations into the real identity of Satoshi Nakamoto were attempted by The New Yorker and Fast Company. The New Yorker's investigation brought up at least two possible candidates: Michael Clear and Vili Lehdonvirta. Fast Company's investigation brought up circumstantial evidence linking an encryption patent application filed by Neal King, Vladimir Oksman and Charles Bry on 15 August 2008, and the bitcoin.org domain name which was registered 72 hours later. The patent application (#20100042841) contained networking and encryption technologies similar to bitcoin's, and textual analysis revealed that the phrase "... computationally impractical to reverse" appeared in both the patent application and bitcoin's whitepaper.  All three inventors explicitly denied being Satoshi Nakamoto.  

In May 2013, Ted Nelson speculated that Japanese mathematician Shinichi Mochizuki is Satoshi Nakamoto.  Later in 2013 the Israeli researchers Dorit Ron and Adi Shamir pointed to Silk Road-linked Ross William Ulbricht as the possible person behind the cover. The two researchers based their suspicion on an analysis of the network of bitcoin transactions.  These allegations were contested  and Ron and Shamir later retracted their claim. 

Nakamoto's involvement with bitcoin does not appear to extend past mid-2010.  In April 2011, Nakamoto communicated with a bitcoin contributor, saying that he had "moved on to other things". 

Stefan Thomas, a Swiss coder and active community member, graphed the time stamps for each of Nakamoto's 500-plus bitcoin forum posts; the resulting chart showed a steep decline to almost no posts between the hours of 5 a.m. and 11 a.m. Greenwich Mean Time. Because this pattern held true even on Saturdays and Sundays, it suggested that Nakamoto was asleep at this time, and the hours of 5 a.m. to 11 a.m. GMT are midnight to 6 a.m. Eastern Standard Time (North American Eastern Standard Time). Other clues suggested that Nakamoto was British: A newspaper headline he had encoded in the genesis block came from the UK-published newspaper The Times, and both his forum posts and his comments in the bitcoin source code used British English spellings, such as "optimise" and "colour". 

An Internet search by an anonymous blogger of texts similar in writing to the bitcoin whitepaper suggests Nick Szabo's "bit gold" articles as having a similar author.  Nick denied being Satoshi, and stated his official opinion on Satoshi and bitcoin in a May 2011 article. 

In a March 2014 article in Newsweek, journalist Leah McGrath Goodman doxed Dorian S. Nakamoto of Temple City, California, saying that Satoshi Nakamoto is the man's birth name. Her methods and conclusion drew widespread criticism.  

In June 2016, the London Review of Books published a piece by Andrew O'Hagan about Nakamoto. 

After a May 2020 YouTube documentary pointed to Adam Back as the creator of bitcoin,  widespread discussion ensued. The real identity of Satoshi Nakamoto still remains a matter of dispute.

Growth

2010

The first notable retail transaction involving physical goods was paid on May 22, 2010, by exchanging 10,000 mined BTC for two pizzas delivered from a local pizza restaurant in Florida, marking May 22 as the Bitcoin Pizza Day for crypto-fans.  At the time, a transaction's value was typically negotiated on the Bitcoin forum.

On 6 August 2010, a major vulnerability in the bitcoin protocol was spotted. While the protocol did verify that a transaction's outputs never exceeded its inputs, a transaction whose outputs summed to more than 2 64 2^{{64}} would overflow, permitting the transaction author to create arbitrary amounts of bitcoin.   On 15 August, the vulnerability was exploited; a single transaction spent 0.5 bitcoin to send just over 92 billion bitcoins (2 63 {\displaystyle 2^{63}} satoshis) to each of two different addresses on the network. Within hours, the transaction was spotted, the bug was fixed, and the blockchain was forked by miners using an updated version of the bitcoin protocol.  Since the blockchain was forked below the problematic transaction, the transaction no longer appears in the blockchain used by the Bitcoin network today. This was the only major security flaw found and exploited in bitcoin's history.   

2011

Based on bitcoin's open-source code, other cryptocurrencies started to emerge. 

The Electronic Frontier Foundation, a non-profit group, started accepting bitcoins in January 2011,  then stopped accepting them in June 2011, citing concerns about a lack of legal precedent about new currency systems.  The EFF's decision was reversed on 17 May 2013 when they resumed accepting bitcoin. 

In May 2011, bitcoin payment processor, BitPay was founded to provide mobile checkout services to companies wanting to accept bitcoins as a form of payment.

In June 2011, WikiLeaks  and other organizations began to accept bitcoins for donations.

2012

In January 2012, bitcoin was featured as the main subject within a fictionalized trial on the CBS legal drama The Good Wife in the third-season episode "Bitcoin for Dummies". The host of CNBC's Mad Money, Jim Cramer, played himself in a courtroom scene where he testifies that he doesn't consider bitcoin a true currency, saying, "There's no central bank to regulate it; it's digital and functions completely peer to peer". 

In September 2012, the Bitcoin Foundation was launched to "accelerate the global growth of bitcoin through standardization, protection, and promotion of the open source protocol". The founders were Gavin Andresen, Jon Matonis, Mark Karpel?s, Charlie Shrem, and Peter Vessenes.

In October 2012, BitPay reported having over 1,000 merchants accepting bitcoin under its payment processing service.  In November 2012, WordPress started accepting bitcoins. 

2013

In February 2013, the bitcoin-based payment processor Coinbase reported selling US$1 million worth of bitcoins in a single month at over $22 per bitcoin.  The Internet Archive announced that it was ready to accept donations as bitcoins and that it intends to give employees the option to receive portions of their salaries in bitcoin currency. 

In March, the bitcoin transaction log, called the blockchain, temporarily split into two independent chains with differing rules on how transactions were accepted. For six hours two bitcoin networks operated at the same time, each with its own version of the transaction history. The core developers called for a temporary halt to transactions, sparking a sharp sell-off.  Normal operation was restored when the majority of the network downgraded to version 0.7 of the bitcoin software.  The Mt. Gox exchange briefly halted bitcoin deposits and the exchange rate briefly dipped by 23% to $37 as the event occurred   before recovering to previous level of approximately $48 in the following hours.  In the US, the Financial Crimes Enforcement Network (FinCEN) established regulatory guidelines for "decentralized virtual currencies" such as bitcoin, classifying American bitcoin miners who sell their generated bitcoins as Money Service Businesses (or MSBs), that may be subject to registration and other legal obligations.   

In April, payment processors BitInstant and Mt. Gox experienced processing delays due to insufficient capacity  resulting in the bitcoin exchange rate dropping from $266 to $76 before returning to $160 within six hours.  Bitcoin gained greater recognition when services such as OkCupid and Foodler began accepting it for payment.  In April 2013, Eric Posner, a law professor at the University of Chicago, stated that "a real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion." 

On 15 May 2013, the US authorities seized accounts associated with Mt. Gox after discovering that it had not registered as a money transmitter with FinCEN in the US.  

On 17 May 2013, it was reported that BitInstant processed approximately 30 percent of the money going into and out of bitcoin, and in April alone facilitated 30,000 transactions, 

On 23 June 2013, it was reported that the US Drug Enforcement Administration listed 11.02 bitcoins as a seized asset in a United States Department of Justice seizure notice pursuant to 21 U.S.C. § 881. This was the first time a government agency was reported to have seized bitcoin.  

In July 2013, a project began in Kenya linking bitcoin with M-Pesa, a popular mobile payments system, in an experiment designed to spur innovative payments in Africa.  During the same month the Foreign Exchange Administration and Policy Department in Thailand stated that bitcoin lacks any legal framework and would therefore be illegal, which effectively banned trading on bitcoin exchanges in the country.  

On 6 August 2013, Federal Judge Amos Mazzant of the Eastern District of Texas of the Fifth Circuit ruled that bitcoins are "a currency or a form of money" (specifically securities as defined by Federal Securities Laws), and as such were subject to the court's jurisdiction,   and Germany's Finance Ministry subsumed bitcoins under the term "unit of account" – a financial instrument – though not as e-money or a functional currency, a classification nonetheless having legal and tax implications. 

In October 2013, the FBI seized roughly 26,000 BTC from website Silk Road during the arrest of alleged owner Ross William Ulbricht.    Two companies, Robocoin and Bitcoiniacs launched the world's first bitcoin ATM on 29 October 2013 in Vancouver, BC, Canada, allowing clients to sell or purchase bitcoin currency at a downtown coffee shop.    Chinese internet giant Baidu had allowed clients of website security services to pay with bitcoins. 

In November 2013, the University of Nicosia announced that it would be accepting bitcoin as payment for tuition fees, with the university's chief financial officer calling it the "gold of tomorrow".  During November 2013, the China-based bitcoin exchange BTC China overtook the Japan-based Mt. Gox and the Europe-based Bitstamp to become the largest bitcoin trading exchange by trade volume. 

In December 2013, Overstock.com  announced plans to accept bitcoin in the second half of 2014. On 5 December 2013, the People's Bank of China prohibited Chinese financial institutions from using bitcoins.  After the announcement, the value of bitcoins dropped,  and Baidu no longer accepted bitcoins for certain services.  Buying real-world goods with any virtual currency had been illegal in China since at least 2009. 

On 4 December 2013, Alan Greenspan referred to it as a "bubble". 

2014

In January 2014, Zynga  announced it was testing bitcoin for purchasing in-game assets in seven of its games. That same month, The D Las Vegas Casino Hotel and Golden Gate Hotel & Casino properties in downtown Las Vegas announced they would also begin accepting bitcoin, according to an article by USA Today. The article also stated the currency would be accepted in five locations, including the front desk and certain restaurants.  The network rate exceeded 10 petahash/sec. TigerDirect  and Overstock.com  started accepting bitcoin.

In early February 2014, one of the largest bitcoin exchanges, Mt. Gox,  suspended withdrawals citing technical issues.  By the end of the month, Mt. Gox had filed for bankruptcy protection in Japan amid reports that 744,000 bitcoins had been stolen.  Months before the filing, the popularity of Mt. Gox had waned as users experienced difficulties withdrawing funds. 

In June 2014, the network exceeded 100 petahash/sec. On 18 June 2014, it was announced that bitcoin payment service provider BitPay would become the new sponsor of St. Petersburg Bowl under a two-year deal, renamed the Bitcoin St. Petersburg Bowl. Bitcoin was to be accepted for ticket and concession sales at the game as part of the sponsorship, and the sponsorship itself was also paid for using bitcoin. 

In July 2014, Newegg and Dell  started accepting bitcoin.

In September 2014, TeraExchange, LLC, received approval from the U.S.Commodity Futures Trading Commission "CFTC" to begin listing an over-the-counter swap product based on the price of a bitcoin. The CFTC swap product approval marks the first time a U.S. regulatory agency approved a bitcoin financial product. 

In December 2014, Microsoft began to accept bitcoin to buy Xbox games and Windows software. 

In 2014, several light-hearted songs celebrating bitcoin such as the "Ode to Satoshi"  were released. 

A documentary film, The Rise and Rise of Bitcoin, was released in 2014, featuring interviews with bitcoin users such as a computer programmer and a drug dealer. 

On 13 March 2014, Warren Buffett called bitcoin a "mirage". 

2015

In January 2015, Coinbase raised US$75 million as part of a Series C funding round, smashing the previous record for a bitcoin company. Less than one year after the collapse of Mt. Gox, United Kingdom-based exchange Bitstamp announced that their exchange would be taken offline while they investigate a hack which resulted in about 19,000 bitcoins (equivalent to roughly US$5 million at that time) being stolen from their hot wallet.  The exchange remained offline for several days amid speculation that customers had lost their funds. Bitstamp resumed trading on 9 January after increasing security measures and assuring customers that their account balances would not be impacted. 

In February 2015, the number of merchants accepting bitcoin exceeded 100,000. 

In 2015, the MAK (Museum of Applied Arts, Vienna) became the first museum to acquire art using bitcoin, when it purchased the screensaver "Event listeners"  of van den Dorpel. 

In October 2015, a proposal was submitted to the Unicode Consortium to add a code point for the bitcoin symbol. 

2016

In January 2016, the network rate exceeded 1 exahash/sec.

In March 2016, the Cabinet of Japan recognized virtual currencies like bitcoin as having a function similar to real money.  Bidorbuy, the largest South African online marketplace, launched bitcoin payments for both buyers and sellers. 

In July 2016, researchers published a paper showing that by November 2013 bitcoin commerce was no longer driven by "sin" activities but instead by legitimate enterprises. 

In August 2016, a major bitcoin exchange, Bitfinex, was hacked and nearly 120,000 BTC (around $60m) was stolen. 

In November 2016, the Swiss Railway operator SBB (CFF) upgraded all their automated ticket machines so that bitcoin could be bought from them using the scanner on the ticket machine to scan the bitcoin address on a phone app. 

Bitcoin generates more academic interest year after year; the number of Google Scholar articles published mentioning bitcoin grew from 83 in 2009, to 424 in 2012, and 3580 in 2016. Also, the academic journal Ledger published its first issue. It is edited by Peter Rizun.

2017

The number of businesses accepting bitcoin continued to increase. In January 2017, NHK reported the number of online stores accepting bitcoin in Japan had increased 4.6 times over the past year.  BitPay CEO Stephen Pair declared the company's transaction rate grew 3? from January 2016 to February 2017, and explained usage of bitcoin is growing in B2B supply chain payments. 

Bitcoin gains more legitimacy among lawmakers and legacy financial companies. For example, Japan passed a law to accept bitcoin as a legal payment method,  and Russia has announced that it will legalize the use of cryptocurrencies such as bitcoin. 

Exchange trading volumes continue to increase. For the 6-month period ending March 2017, Mexican exchange Bitso saw trading volume increase 1500%.  Between January and May 2017 Poloniex saw an increase of more than 600% active traders online and regularly processed 640% more transactions. 

In June 2017, the bitcoin symbol was encoded in Unicode version 10.0 at position U+20BF (?) in the Currency Symbols block. 

Up until July 2017, bitcoin users maintained a common set of rules for the cryptocurrency.  On 1 August 2017 bitcoin split into two derivative digital currencies, the bitcoin (BTC) chain with 1 MB blocksize limit and the Bitcoin Cash (BCH) chain with 8 MB blocksize limit. The split has been called the Bitcoin Cash hard fork. 

On 6 December 2017 the software marketplace Steam announced that it would no longer accept bitcoin as payment for its products, citing slow transactions speeds, price volatility, and high fees for transactions. 

2018

See also: Cryptocurrency bubble § 2018 crash

On 22 January 2018, South Korea brought in a regulation that requires all the bitcoin traders to reveal their identity, thus putting a ban on anonymous trading of bitcoins. 

On 24 January 2018, the online payment firm Stripe announced that it would phase out its support for bitcoin payments by late April 2018, citing declining demand, rising fees and longer transaction times as the reasons. 

On 25 January 2018, George Soros referred to bitcoin as a bubble. 

2019

The dawn of 2019 found Bitcoin trading below the $4000 mark after a difficult year for the global crypto market. It climbed to just over $12,000 in July before. 

2020

On 2 July 2020, the Indian company 69 Shares started to quote a set of bitcoin exchange-traded products (ETP) on the Xetra trading system of the Deutsche Boerse. 

On 1 September 2020, the Wiener Burse listed its first 21 titles denominated in cryptocurrencies like bitcoin, including the services of real-time quotation and securities settlement. 

On 3 September 2020, the Frankfurt Stock Exchange admitted in its Regulated Market the quotation of the first bitcoin exchange-traded note (ETN), centrally cleared via Eurex Clearing.  

In October 2020, PayPal announced that it would allow its users to buy and sell bitcoin on its platform, although not to deposit or withdraw bitcoins. 

2021

From February 2021, the Swiss canton of Zug allows for tax payments in bitcoin and other cryptocurrencies. 

On 1 June 2021, El Salvador President Nayib Bukele announced his plans to adopt bitcoin as legal tender; this would render El Salvador the world's first country to do so. 

On 8 June 2021, at the initiative of the president, pro-government deputies in the Legislative Assembly of El Salvador voted legislation—Ley Bitcoin or the Bitcoin Law—to make Bitcoin legal tender in the country alongside the US Dollar.  

2022

Global economic factors that stemmed from Russia's War in Ukraine negatively affected the price of Bitcoin. On April 22, 2022, its price fell back down below $40,000.  It further dropped to as low as $26,970 in May after the collapse of Terra-Luna and its sister stablecoin, UST, in addition to a shedding of tech stocks.  On 18 June, Bitcoin dropped below $18,000, to trade at levels beneath its 2017 highs.  

Prices and value history

The price of a bitcoin reached US$1,139.9 on 4 January 2017. (semi logarithmic plot)

Among the factors which may have contributed to this rise were the European sovereign-debt crisis – particularly the 2012–2013 Cypriot financial crisis – statements by FinCEN improving the currency's legal standing, and rising media and Internet interest.    

Until 2013, almost all market with bitcoins were in United States dollars (US$). 

As the market valuation of the total stock of bitcoins approached US$1 billion, some commentators called bitcoin prices a bubble.    In early April 2013, the price per bitcoin dropped from $266 to around $50 and then rose to around $100. Over two weeks starting late June 2013 the price dropped steadily to $70. The price began to recover, peaking once again on 1 October at $140. On 2 October, The Silk Road was seized by the FBI. This seizure caused a flash crash to $110. The price quickly rebounded, returning to $200 several weeks later.  The latest run went from $200 on 3 November to $900 on 18 November.  Bitcoin passed US$1,000 on 28 November 2013 at Mt. Gox. 

Forks

A fork, referring to a blockchain, is defined variously as a blockchain split into two paths forward, or as a change of protocol rules. Accidental forks on the bitcoin network regularly occur as part of the mining process. They happen when two miners find a block at a similar point in time. As a result, the network briefly forks. This fork is subsequently resolved by the software which automatically chooses the longest chain, thereby orphaning the extra blocks added to the shorter chain (that were dropped by the longer chain).

March 2013

On 12 March 2013, a bitcoin miner running version 0.8.0 of the bitcoin software created a large block that was considered invalid in version 0.7 (due to an undiscovered inconsistency between the two versions). This created a split or "fork" in the blockchain since computers with the recent version of the software accepted the invalid block and continued to build on the diverging chain, whereas older versions of the software rejected it and continued extending the blockchain without the offending block. This split resulted in two separate transaction logs being formed without clear consensus, which allowed for the same funds to be spent differently on each chain. In response, the Mt. Gox exchange temporarily halted bitcoin deposits.  The exchange rate fell 23% to $37 on the Mt. Gox exchange but rose most of the way back to its prior level of $48.  

Miners resolved the split by downgrading to version 0.7, putting them back on track with the canonical blockchain. User funds largely remained unaffected and were available when network consensus was restored.  The network reached consensus and continued to operate as normal a few hours after the split. 

August 2017

Two significant forks took place in August. One, Bitcoin Cash, is a hard fork off the main chain in opposition to the other, which is a soft fork to implement Segregated Witness.

Regulatory issues

On 18 March 2013, the Financial Crimes Enforcement Network (or FinCEN), a bureau of the United States Department of the Treasury, issued a report regarding centralized and decentralized "virtual currencies" and their legal status within "money services business" (MSB) and Bank Secrecy Act regulations.   It classified digital currencies and other digital payment systems such as bitcoin as "virtual currencies" because they are not legal tender under any sovereign jurisdiction. FinCEN cleared American users of bitcoin of legal obligations  by saying, "A user of virtual currency is not an MSB under FinCEN's regulations and therefore is not subject to MSB registration, reporting, and recordkeeping regulations." However, it held that American entities who generate "virtual currency" such as bitcoins are money transmitters or MSBs if they sell their generated currency for national currency: "...a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter." This specifically extends to "miners" of the bitcoin currency who may have to register as MSBs and abide by the legal requirements of being a money transmitter if they sell their generated bitcoins for national currency and are within the United States.  Since FinCEN issued this guidance, dozens of virtual currency exchangers and administrators have registered with FinCEN, and FinCEN is receiving an increasing number of suspicious activity reports (SARs) from these entities. 

Additionally, FinCEN claimed regulation over American entities that manage bitcoins in a payment processor setting or as an exchanger: "In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency."  

In summary, FinCEN's decision would require bitcoin exchanges where bitcoins are traded for traditional currencies to disclose large transactions and suspicious activity, comply with money laundering regulations, and collect information about their customers as traditional financial institutions are required to do.  

Jennifer Shasky Calvery, the director of FinCEN said, "Virtual currencies are subject to the same rules as other currencies. ... Basic money-services business rules apply here." 

In its October 2012 study, Virtual currency schemes, the European Central Bank concluded that the growth of virtual currencies will continue, and, given the currencies' inherent price instability, lack of close regulation, and risk of illegal uses by anonymous users, the Bank warned that periodic examination of developments would be necessary to reassess risks. 

In 2013, the U.S. Treasury extended its anti-money laundering regulations to processors of bitcoin transactions.  

In June 2013, Bitcoin Foundation board member Jon Matonis wrote in Forbes that he received a warning letter from the California Department of Financial Institutions accusing the foundation of unlicensed money transmission. Matonis denied that the foundation is engaged in money transmission and said he viewed the case as "an opportunity to educate state regulators." 

In late July 2013, the industry group Committee for the Establishment of the Digital Asset Transfer Authority began to form to set best practices and standards, to work with regulators and policymakers to adapt existing currency requirements to digital currency technology and business models and develop risk management standards. 

In 2014, the U.S. Securities and Exchange Commission filed an administrative action against Erik T. Voorhees, for violating Securities Act Section 5 for publicly offering unregistered interests in two bitcoin websites in exchange for bitcoins. 

By December 2017, bitcoin futures contracts began to be offered, and the US Chicago Board Options Exchange (CBOE) was formally settling the futures daily.   By 2019, multiple trading companies were offering services around bitcoin futures. 

Bitcoin faucets

A bitcoin faucet is a reward system, in the form of a website or software app, that dispenses rewards in the form of a satoshi, which is worth a hundredth of a millionth BTC, for visitors to claim in exchange for completing a captcha or task as described by the website. There are also faucets that dispense alternative cryptocurrencies. The first bitcoin faucet was called "The Bitcoin Faucet" and was developed by Gavin Andresen in 2010.  It originally gave out five bitcoins per person.

The rewards are dispensed at various predetermined intervals of time as rewards for completing simple tasks such as captcha completion and as prizes from simple games. Faucets usually give fractions of a bitcoin, but the amount will typically fluctuate according to the value of bitcoin. Some faucets also have random larger rewards. To reduce mining fees, faucets normally save up these small individual payments in their own ledgers, which then add up to make a larger payment that is sent to a user's bitcoin address. 

Because bitcoin transactions are irreversible and there are many faucets, they have become targets for hackers interested in stealing bitcoins. Advertisements are the main income source of bitcoin faucets. Faucets try to get traffic from users by offering free bitcoin as an incentive. Some ad networks also pay directly in bitcoin. This means that faucets often have a low profit margin. Some faucets also make money by mining altcoins in the background, using the user's CPU.

Theft and exchange shutdowns

Bitcoins can be stored in a bitcoin cryptocurrency wallet. Theft of bitcoin has been documented on numerous occasions. At other times, bitcoin exchanges have shut down, taking their clients' bitcoins with them. A Wired study published April 2013 showed that 45 percent of bitcoin exchanges end up closing. 

On 19 June 2011, a security breach of the Mt. Gox bitcoin exchange caused the nominal price of a bitcoin to fraudulently drop to one cent on the Mt. Gox exchange, after a hacker used credentials from a Mt. Gox auditor's compromised computer illegally to transfer a large number of bitcoins to himself. They used the exchange's software to sell them all nominally, creating a massive "ask" order at any price. Within minutes, the price reverted to its correct user-traded value.       Accounts with the equivalent of more than US$8,750,000 were affected. 

In July 2011, the operator of Bitomat, the third-largest bitcoin exchange, announced that he had lost access to his wallet.dat file with about 17,000 bitcoins (roughly equivalent to US$220,000 at that time). He announced that he would sell the service for the missing amount, aiming to use funds from the sale to refund his customers. 

In August 2011, MyBitcoin, a now defunct bitcoin transaction processor, declared that it was hacked, which caused it to be shut down, paying 49% on customer deposits, leaving more than 78,000 bitcoins (equivalent to roughly US$800,000 at that time) unaccounted for.  

In early August 2012, a lawsuit was filed in San Francisco court against Bitcoinica – a bitcoin trading venue – claiming about US$460,000 from the company. Bitcoinica was hacked twice in 2012, which led to allegations that the venue neglected the safety of customers' money and cheated them out of withdrawal requests.  

In late August 2012, an operation titled Bitcoin Savings and Trust was shut down by the owner, leaving around US$5.6 million in bitcoin-based debts; this led to allegations that the operation was a Ponzi scheme.    In September 2012, the U.S. Securities and Exchange Commission had reportedly started an investigation on the case. 

In September 2012, Bitfloor, a bitcoin exchange, also reported being hacked, with 24,000 bitcoins (worth about US$250,000) stolen. As a result, Bitfloor suspended operations.   The same month, Bitfloor resumed operations; its founder said that he reported the theft to FBI, and that he plans to repay the victims, though the time frame for repayment is unclear. 

On 3 April 2013, Instawallet, a web-based wallet provider, was hacked,  resulting in the theft of over 35,000 bitcoins  which were valued at US$129.90 per bitcoin at the time, or nearly $4.6 million in total. As a result, Instawallet suspended operations. 

On 11 August 2013, the Bitcoin Foundation announced that a bug in a pseudorandom number generator within the Android operating system had been exploited to steal from wallets generated by Android apps; fixes were provided 13 August 2013. 

In October 2013, Inputs.io, an Australian-based bitcoin wallet provider was hacked with a loss of 4100 bitcoins, worth over A$1 million at time of theft. The service was run by the operator TradeFortress. Coinchat, the associated bitcoin chat room, was taken over by a new admin. 

On 26 October 2013, a Hong Kong–based bitcoin trading platform owned by Global Bond Limited (GBL) vanished with 30 million yuan (US$5 million) from 500 investors. 

Mt. Gox, the Japan-based exchange that in 2013 handled 70% of all worldwide bitcoin traffic, declared bankruptcy in February 2014, with bitcoins worth about $390 million missing, for unclear reasons. The CEO was eventually arrested and charged with embezzlement. 

On 3 March 2014, Flexcoin announced it was closing its doors because of a hack attack that took place the day before.    In a statement that once occupied their homepage they announced on 3 March 2014 that "As Flexcoin does not have the resources, assets, or otherwise to come back from this loss the hack, we are closing our doors immediately."  Users can no longer log into the site.

Chinese cryptocurrency exchange Bter lost $2.1 million in BTC in February 2015.

The Slovenian exchange Bitstamp lost bitcoin worth $5.1 million to a hack in January 2015.

The US-based exchange Cryptsy declared bankruptcy in January 2016, ostensibly because of a 2014 hacking incident; the court-appointed receiver later alleged that Cryptsy's CEO had stolen $3.3 million.

In August 2016, hackers stole some $72 million in customer bitcoin from the Hong Kong–based exchange Bitfinex. 

In December 2017, hackers stole 4,700 bitcoins from NiceHash, a platform that allowed users to sell hashing power.  The value of the stolen bitcoins totaled about $80 million at the time. 

On 19 December 2017, Yapian, a company that owns the Youbit cryptocurrency exchange in South Korea, filed for bankruptcy following a hack, the second in eight months. 

On 11 November 2022 FTX filed for bankruptcy with an estimated $8 billion missing in customer funds.

Taxation and regulation

In 2012, the Cryptocurrency Legal Advocacy Group (CLAG) stressed the importance for taxpayers to determine whether taxes are due on a bitcoin-related transaction based on whether one has experienced a "realization event": when a taxpayer has provided a service in exchange for bitcoins, a realization event has probably occurred and any gain or loss would likely be calculated using fair market values for the service provided." 

In August 2013, the German Finance Ministry characterized bitcoin as a unit of account,   usable in multilateral clearing circles and subject to capital gains tax if held less than one year. 

On 5 December 2013, the People's Bank of China announced in a press release regarding bitcoin regulation that whilst individuals in China are permitted to freely trade and exchange bitcoins as a commodity, it is prohibited for Chinese financial banks to operate using bitcoins or for bitcoins to be used as legal tender currency, and that entities dealing with bitcoins must track and report suspicious activity to prevent money laundering.  The value of bitcoin dropped on various exchanges between 11 and 20 percent following the regulation announcement, before rebounding upward again. 

Arbitrary blockchain content

Bitcoin's blockchain can be loaded with arbitrary data. In 2018 researchers from RWTH Aachen University and Goethe University identified 1,600 files added to the blockchain, 59 of which included links to unlawful images of child exploitation, politically sensitive content, or privacy violations. "Our analysis shows that certain content, e.g. illegal pornography, can render the mere possession of a blockchain illegal." 

Interpol also sent out an alert in 2015 saying that "the design of the blockchain means there is the possibility of malware being injected and permanently hosted with no methods currently available to wipe this data". 

Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital currencies include cryptocurrency, virtual currency and central bank digital currency. Digital currency may be recorded on a distributed database on the internet, a centralized electronic computer database owned by a company or bank, within digital files or even on a stored-value card. 

Digital currencies exhibit properties similar to traditional currencies, but generally do not have a classical physical form of fiat currency historically that can be held in the hand, like currencies with printed banknotes or minted coins. However, they do have a physical form in an unclassical sense coming from the computer to computer and computer to human interactions and the information and processing power of the servers that store and keep track of money. This unclassical physical form allows nearly instantaneous transactions over the internet and vastly lowers the cost associated with distributing notes and coins: for example, of the types of money in the UK economy, 3% are notes and coins, and 79% as electronic money (in the form of bank deposits). Usually not issued by a governmental body, virtual currencies are not considered a legal tender and they enable ownership transfer across governmental borders. 

This type of currency may be used to buy physical goods and services, but may also be restricted to certain communities such as for use inside an online game. 

Digital money can either be centralized, where there is a central point of control over the money supply (for instance, a bank), or decentralized, where the control over the money supply is predetermined or agreed upon democratically.

History

Precursory ideas for digital currencies were presented in electronic payment methods such as the Sabre (travel reservation system). In 1983, a research paper titled "Blind Signatures for Untraceable Payments" by David Chaum introduced the idea of digital cash. In 1989, he founded DigiCash, an electronic cash company, in Amsterdam to commercialize the ideas in his research. It filed for bankruptcy in 1998. 

e-gold was the first widely used Internet money, introduced in 1996, and grew to several million users before the US Government shut it down in 2008. e-gold has been referenced to as "digital currency" by both US officials and academia. In 1997, Coca-Cola offered buying from vending machines using mobile payments. PayPal launched its USD-denominated service in 1998. In 2009, bitcoin was launched, which marked the start of decentralized blockchain-based digital currencies with no central server, and no tangible assets held in reserve. Also known as cryptocurrencies, blockchain-based digital currencies proved resistant to attempt by government to regulate them, because there was no central organization or person with the power to turn them off. 

Origins of digital currencies date back to the 1990s Dot-com bubble. Another known digital currency service was Liberty Reserve, founded in 2006; it lets users convert dollars or euros to Liberty Reserve Dollars or Euros, and exchange them freely with one another at a 1% fee. Several digital currency operations were reputed to be used for Ponzi schemes and money laundering, and were prosecuted by the U.S. government for operating without MSB licenses. Q coins or QQ coins, were used as a type of commodity-based digital currency on Tencent QQ's messaging platform and emerged in early 2005. Q coins were so effective in China that they were said to have had a destabilizing effect on the Chinese Yuan currency due to speculation. Recent interest in cryptocurrencies has prompted renewed interest in digital currencies, with bitcoin, introduced in 2008, becoming the most widely used and accepted digital currency.

Sub-types of digital currency and comparisons

Digital currency as a specific type and as a meta-group name

Digital currency is a term that refers to a specific type of electronic currency with specific properties. Digital currency is also a term used to include the meta-group of sub-types of digital currency, the specific meaning can only be determined within the specific legal or contextual case. Legally and technically, there already are a myriad of legal definitions of digital currency and the many digital currency sub-types. Combining different possible properties, there exists an extensive number of implementations creating many and numerous sub-types of digital currency. Many governmental jurisdictions have implemented their own unique definition for digital currency, virtual currency, cryptocurrency, e-money, network money, e-cash, and other types of digital currency. Within any specific government jurisdiction, different agencies and regulators define different and often conflicting meanings for the different types of digital currency based on the specific properties of a specific currency type or sub-type.

Digital versus virtual currency

Main article: Virtual currency

A virtual currency has been defined in 2012 by the European Central Bank as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community". The US Department of Treasury in 2013 defined it more tersely as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency". The US Department of Treasury also stated that, "Virtual currency does not have legal-tender status in any jurisdiction." 

According to the European Central Bank's 2015 "Virtual currency schemes – a further analysis" report, virtual currency is a digital representation of value, not issued by a central bank, credit institution or e-money institution, which, in some circumstances, can be used as an alternative to money. In the previous report of October 2012, the virtual currency was defined as a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community. 

According to the Bank for International Settlements' November 2015 "Digital currencies" report, it is an asset represented in digital form and having some monetary characteristics. Digital currency can be denominated to a sovereign currency and issued by the issuer responsible to redeem digital money for cash. In that case, digital currency represents electronic money (e-money). Digital currency denominated in its own units of value or with decentralized or automatic issuance will be considered as a virtual currency. As such, bitcoin is a digital currency but also a type of virtual currency. Bitcoin and its alternatives are based on cryptographic algorithms, so these kinds of virtual currencies are also called cryptocurrencies.

Digital versus cryptocurrency

Cryptocurrency is a sub-type of digital currency and a digital asset that relies on cryptography to chain together digital signatures of asset transfers, peer-to-peer networking and decentralization. In some cases a proof-of-work or proof-of-stake scheme is used to create and manage the currency. Cryptocurrencies can allow electronic money systems to be decentralized. When implemented with a blockchain, the digital ledger system or record keeping system uses cryptography to edit separate shards of database entries that are distributed across many separate servers. The first and most popular system is bitcoin, a peer-to-peer electronic monetary system based on cryptography.

Digital versus traditional currency

Most of the traditional money supply is bank money held on computers. They are considered digital currency in some cases. One could argue that our increasingly cashless society means that all currencies are becoming digital currencies, but they are not presented to us as such. 

Types of systems

Centralized systems

Main article: Electronic funds transfer

Currency can be exchanged electronically using debit cards and credit cards using electronic funds transfer at point of sale.

Mobile digital wallets

A number of electronic money systems use contactless payment transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction.

In 1994 Mondex and National Westminster Bank provided an "electronic purse" to residents of Swindon

In about 2005 Telef?nica and BBVA Bank launched a payment system in Spain called Mobipay which used simple short message service facilities of feature phones intended for pay-as-you-go services including taxis and pre-pay phone recharges via a BBVA current bank account debit.

In January 2010, Venmo launched as a mobile payment system through SMS, which transformed into a social app where friends can pay each other for minor expenses like a cup of coffee, rent and pay a share of the restaurant bill when one has forgotten their wallet. It is popular with college students, but has some security issues. It can be linked to a bank account, credit/debit card or have a loaded value to limit the amount of loss in case of a security breach. Credit cards and non-major debit cards incur a 3% processing fee. 

On 19 September 2011, Google Wallet released in the United States to make it easy to carry all one's credit/debit cards on a phone. 

In 2012 Ireland's O2 (owned by Telef?nica) launched Easytrip to pay road tolls which were charged to the mobile phone account or prepay credit. 

The UK's O2 invented O2 Wallet at about the same time. The wallet can be charged with regular bank accounts or cards and discharged by participating retailers using a technique known as 'money messages'. The service closed in 2014.

On 9 September 2014, Apple Pay was announced at the iPhone 6 event. In October 2014 it was released as an update to work on iPhone 6 and Apple Watch. It is very similar to Google Wallet, but for Apple devices only. 

Central bank digital currency

A central bank digital currency (CBDC) is a form of universally accessible digital money in a nation and holds the same value as the country's paper currency. Like a cryptocurrency, a CBCD is held in the form of tokens. CBDCs are different from regular digital cash forms like in online bank accounts because CBDCs are established through the central bank within a country, with liabilities held by one's government, rather than from a commercial bank. Approximately nine countries have already established a CBDC, with interest in the system increasing highly throughout the world. In these nations, CBDCs have been used as a form of exchange and a way for governments to try to prevent risks from occurring within their financial systems. 

Decentralized systems

Main article: Cryptocurrency

See also: List of cryptocurrencies

Digital Currency has been implemented in some cases as a decentralized system of any combination of currency issuance, ownership record, ownership transfer authorization and validation, and currency storage.

Per the Bank for International Settlements (BIS), "These schemes do not distinguish between users based on location, and therefore allow value to be transferred between users across borders. Moreover, the speed of a transaction is not conditional on the location of the payer and payee." 

Law

Since 2001, the European Union has implemented the E-Money Directive "on the taking up, pursuit and prudential supervision of the business of electronic money institutions" last amended in 2009. 

In the United States, electronic money is governed by Article 4A of the Uniform Commercial Code for wholesale transactions and the Electronic Fund Transfer Act for consumer transactions. Provider's responsibility and consumer's liability are regulated under Regulation E. 

Regulation

Virtual currencies pose challenges for central banks, financial regulators, departments or ministries of finance, as well as fiscal authorities and statistical authorities.

Adoption by governments

As of 2016, over 24 countries are investing in distributed ledger technologies (DLT) with $1.4bn in investments. In addition, over 90 central banks are engaged in DLT discussions, including implications of a central bank issued digital currency. 

Hong Kong's Octopus card system: Launched in 1997 as an electronic purse for public transportation, is the most successful and mature implementation of contactless smart cards used for mass transit payments. After only 5 years, 25 percent of Octopus card transactions are unrelated to transit, and accepted by more than 160 merchants. 

London Transport's Oyster card system: Oyster is a plastic smartcard that can hold pay-as-you-go credit, Travelcards and Bus & Tram season tickets. An Oyster card can be used to travel on bus, Tube, tram, DLR, London Overground and most National Rail services in London. 

Japan's FeliCa: A contactless RFID smart card, used in a variety of ways such as in ticketing systems for public transportation, e-money, and residence door keys. 

The Netherlands' Chipknip: As an electronic cash system used in the Netherlands, all ATM cards issued by the Dutch banks had value that could be loaded via Chipknip loading stations. For people without a bank, pre-paid Chipknip cards could be purchased at various locations in the Netherlands. As of 1 January 2015, payment can no longer be made with Chipknip. 

Belgium's Proton: An electronic purse application for debit cards in Belgium. Introduced in February 1995, as a means to replace cash for small transactions. The system was retired on 31 December 2014. 

In March 2018, the Marshall Islands became the first country to issue their own cryptocurrency and certify it as legal tender; the currency is called the "sovereign". 

United States of America

US Commodity Futures Trading Commission guidance

The US Commodity Futures Trading Commission (CFTC) has determined virtual currencies are properly defined as commodities in 2015. The CFTC warned investors against pump and dump schemes that use virtual currencies. 

US Internal Revenue Service guidance

The US Internal Revenue Service (IRS) ruling Notice 2014-21 defines any virtual currency, cryptocurrency and digital currency as property; gains and losses are taxable within standard property policies.

US Treasury guidance

On 20 March 2013, the Financial Crimes Enforcement Network issued a guidance to clarify how the U.S. Bank Secrecy Act applied to persons creating, exchanging, and transmitting virtual currencies. 

US Securities and Exchange Commission guidance

In May 2014 the US Securities and Exchange Commission (SEC) "warned about the hazards of bitcoin and other virtual currencies". 

New York state regulation

In July 2014, the New York State Department of Financial Services proposed the most comprehensive regulation of virtual currencies to date, commonly called BitLicense. It has gathered input from bitcoin supporters and the financial industry through public hearings and a comment period until 21 October 2014 to customize the rules. The proposal per NY DFS press release "sought to strike an appropriate balance that helps protect consumers and root out illegal activity".  It has been criticized by smaller companies to favor established institutions, and Chinese bitcoin exchanges have complained that the rules are "overly broad in its application outside the United States". 

Canada

The Bank of Canada have explored the possibility of creating a version of its currency on the blockchain. 

The Bank of Canada teamed up with the nation's five largest banks – and the blockchain consulting firm R3 – for what was known as Project Jasper. In a simulation run in 2016, the central bank issued CAD-Coins onto a blockchain similar Ethereum. The banks used the CAD-Coins to exchange money the way they do at the end of each day to settle their master accounts. 

China

In 2016, Fan Yifei, a deputy governor of China's central bank, the People's Bank of China (PBOC), wrote that "the conditions are ripe for digital currencies, which can reduce operating costs, increase efficiency and enable a wide range of new applications". According to Fan Yifei, the best way to take advantage of the situation is for central banks to take the lead, both in supervising private digital currencies and in developing digital legal tender of their own. 

In October 2019, the PBOC announced that a digital renminbi would be released after years of preparation. The version of the currency, known as DCEP (Digital Currency Electronic Payment), is based on cryptocurrency which can be "decoupled" from the banking system. The announcement received a variety of responses: some believe it is more about domestic control and surveillance. 

In December 2020, the PBOC distributed ?20 RMB million worth of digital renminbi to the residents of Suzhou through a lottery program to further promote the government-backed digital currency. Recipients of the currency could make both offline and online purchases, expanding on an earlier trial that did not require internet connection through the inclusion of online stores in the program. Around 20,000 transactions were reported by the e-commerce company JD.com in the first 24 hours of the trial. Contrary to other online payment platforms such as Alipay or WeChat Pay, the digital currency does not have transaction fees. 

Denmark

The Danish government proposed getting rid of the obligation for selected retailers to accept payment in cash, moving the country closer to a "cashless" economy. The Danish Chamber of Commerce is backing the move. Nearly a third of the Danish population uses MobilePay, a smartphone application for transferring money. 

Ecuador

A law passed by the National Assembly of Ecuador gives the government permission to make payments in electronic currency and proposes the creation of a national digital currency. "Electronic money will stimulate the economy; it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone. The electronic currency will be backed by the assets of the Central Bank of Ecuador", the National Assembly said in a statement. In December 2015, Sistema de Dinero Electr?nico ("electronic money system") was launched, making Ecuador the first country with a state-run electronic payment system. 

El Salvador

On Jun 9, 2021, the Legislative Assembly of El Salvador has become the first country in the world to officially classify Bitcoin as legal currency. Starting 90 days after approval, every business must accept Bitcoin as legal tender for goods or services, unless it is unable to provide the technology needed to do the transaction. 

Netherlands

The Dutch central bank is experimenting with a blockchain-based virtual currency called "DNBCoin". 

India

The Unified Payments Interface (UPI) is a real-time payment system for instant money transfers between any two bank accounts held in participating banks in India. The interface has been developed by the National Payments Corporation of India and is regulated by the Reserve Bank of India. This digital payment system is available 24*7*365. UPI is agnostic to the type of user and is used for person to person, person to business, business to person and business to business transactions.

Transactions can be initiated by the payer or the payee. To identify a bank account it uses a unique Virtual Payment Address (VPA) of the type 'accountID@bankID'. The VPA can be assigned by the bank, but can also be self specified just like an email address. The simplest and most common form of VPA is 'mobilenumber@upi'. Money can be transferred from one VPA to another or from one VPA to any bank account in a participating bank using account number and bank branch details. Transfers can be inter-bank or intra-bank.

UPI has no intermediate holding pond for money. It withdraws funds directly from the bank account of the sender and deposits them directly into the recipient's bank account whenever a transaction is requested. A sender can initiate and authorise a transfer using a two step secure process: login using a pass code ? initiate ? verify using a passcode. A receiver can initiate a payment request on the system to send the payer a notification or by presenting a QR code. On receiving the request, the payer can decline or confirm the payment using the same two step process: login ? confirm ? verify. The system is extraordinarily user friendly to the extent that even technophobes and barely literate users are adopting it in huge numbers.

Russia

Government-controlled Sberbank of Russia owns YooMoney – electronic payment service and digital currency of the same name. 

Sweden

Sweden is in the process of replacing all of its physical banknotes, and most of its coins by mid-2017. However, the new banknotes and coins of the Swedish krona will probably be circulating at about half the 2007 peak of 12,494 kronor per capita. The Riksbank is planning to begin discussions of an electronic currency issued by the central bank to which "is not to replace cash, but to act as complement to it". Deputy Governor Cecilia Skingsley states that cash will continue to spiral out of use in Sweden, and while it is currently fairly easy to get cash in Sweden, it is often very difficult to deposit it into bank accounts, especially in rural areas. No decision has been currently made about the decision to create "e-krona".

In her speech, Skingsley states: "The first question is whether e-krona should be booked in accounts or whether the ekrona should be some form of a digitally transferable unit that does not need an underlying account structure, roughly like cash." Skingsley also states: "Another important question is whether the Riksbank should issue e-krona directly to the general public or go via the banks, as we do now with banknotes and coins." Other questions will be addressed like interest rates, should they be positive, negative, or zero? 

Switzerland

In 2016, a city government first accepted digital currency in payment of city fees. Zug, Switzerland, added bitcoin as a means of paying small amounts, up to SFr 200, in a test and an attempt to advance Zug as a region that is advancing future technologies. In order to reduce risk, Zug immediately converts any bitcoin received into the Swiss currency. Swiss Federal Railways, government-owned railway company of Switzerland, sells bitcoins at its ticket machines. 

UK

In 2016, the UK's chief scientific adviser, Sir Mark Walport, advised the government to consider using a blockchain-based digital currency. 

The chief economist of Bank of England, the central bank of the United Kingdom, proposed the abolition of paper currency. The Bank has also taken an interest in blockchain. In 2016 it has embarked on a multi-year research programme to explore the implications of a central bank issued digital currency. The Bank of England has produced several research papers on the topic. One suggests that the economic benefits of issuing a digital currency on a distributed ledger could add as much as 3 percent to a country's economic output. The Bank said that it wanted the next version of the bank's basic software infrastructure to be compatible with distributed ledgers. 

Adoption by financial actors

Government attitude dictates the tendency among established heavy financial actors that both are risk-averse and conservative. None of these offered services around cryptocurrencies and much of the criticism came from them. "The first mover among these has been Fidelity Investments, Boston based Fidelity Digital Assets LLC will provide enterprise-grade custody solutions, a cryptocurrency trading execution platform and institutional advising services 24 hours a day, seven days a week designed to align with blockchain's always-on trading cycle". It will work with Bitcoin and Ethereum with general availability scheduled for 2019.

Hard vs. soft digital currencies

Hard electronic currency does not have the ability to be disputed or reversed when used. It is nearly impossible to reverse a transaction, justified or not. It is very similar to cash.

Soft electronic currencies are the opposite of hard electronic currencies. Payments can be reversed. Usually, when a payment is reversed there is a "clearing time." A hard currency can be "softened" with a third-party service.

Criticism

Many existing digital currencies have not yet seen widespread usage, and may not be easily used or exchanged. Banks generally do not accept or offer services for them. There are concerns that cryptocurrencies are extremely risky due to their very high volatility and potential for pump and dump schemes. Regulators in several countries have warned against their use and some have taken concrete regulatory measures to dissuade users. The non-cryptocurrencies are all centralized. As such, they may be shut down or seized by a government at any time. The more anonymous a currency is, the more attractive it is to criminals, regardless of the intentions of its creators. Bitcoin has also been criticised for its energy inefficient SHA-256-based proof of work. 

According to Barry Eichengreen, an economist known for his work on monetary and financial economics, "cryptocurrencies like Bitcoin are too volatile to possess the essential attributes of money. Stablecoins have fragile currency pegs that diminish their utility in transactions. And central bank digital currencies are a solution in search of a problem." 

Popularity

Digital Currencies have become popular due to their convenient nature. Many users believe digital currency allows them to transfer money quicker and in a simpler manner. Many countries have adopted forms of digital currency due to doubts in the strength of their banking systems and distrust in the state of their economy. Other users prefer digital currency due to the freedom it gives them in their spending habits. Due to the fact that regulation over digital currencies is weak, many users can go around typical rules and regulations that are upheld with fiat currencies. In times of financial predicaments within a country, digital currencies may also help protect a user's assets. 

A blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes.     Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (generally represented as a Merkle tree, where data nodes are represented by leaves). Since each block contains information about the previous block, they effectively form a chain (compare linked list data structure), with each additional block linking to the ones before it. Consequently, blockchain transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.

Blockchains are typically managed by a peer-to-peer (P2P) computer network for use as a public distributed ledger, where nodes collectively adhere to a consensus algorithm protocol to add and validate new transaction blocks. Although blockchain records are not unalterable, since blockchain forks are possible, blockchains may be considered secure by design and exemplify a distributed computing system with high Byzantine fault tolerance. 

A blockchain was created by a person (or group of people) using the name (or pseudonym) Satoshi Nakamoto in 2008 to serve as the public distributed ledger for bitcoin cryptocurrency transactions, based on previous work by Stuart Haber, W. Scott Stornetta, and Dave Bayer.  The implementation of the blockchain within bitcoin made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server. The bitcoin design has inspired other applications   and blockchains that are readable by the public and are widely used by cryptocurrencies. The blockchain may be considered a type of payment rail. 

Private blockchains have been proposed for business use. Computerworld called the marketing of such privatized blockchains without a proper security model "snake oil";  however, others have argued that permissioned blockchains, if carefully designed, may be more decentralized and therefore more secure in practice than permissionless ones.  

History

Cryptographer David Chaum first proposed a blockchain-like protocol in his 1982 dissertation "Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups."  Further work on a cryptographically secured chain of blocks was described in 1991 by Stuart Haber and W. Scott Stornetta.   They wanted to implement a system wherein document timestamps could not be tampered with. In 1992, Haber, Stornetta, and Dave Bayer incorporated Merkle trees into the design, which improved its efficiency by allowing several document certificates to be collected into one block.   Under their company Surety, their document certificate hashes have been published in The New York Times every week since 1995. 

The first decentralized blockchain was conceptualized by a person (or group of people) known as Satoshi Nakamoto in 2008. Nakamoto improved the design in an important way using a Hashcash-like method to timestamp blocks without requiring them to be signed by a trusted party and introducing a difficulty parameter to stabilize the rate at which blocks are added to the chain.  The design was implemented the following year by Nakamoto as a core component of the cryptocurrency bitcoin, where it serves as the public ledger for all transactions on the network. 

In August 2014, the bitcoin blockchain file size, containing records of all transactions that have occurred on the network, reached 20 GB (gigabytes).  In January 2015, the size had grown to almost 30 GB, and from January 2016 to January 2017, the bitcoin blockchain grew from 50 GB to 100 GB in size. The ledger size had exceeded 200 GB by early 2020. 

The words block and chain were used separately in Satoshi Nakamoto's original paper, but were eventually popularized as a single word, blockchain, by 2016. 

According to Accenture, an application of the diffusion of innovations theory suggests that blockchains attained a 13.5% adoption rate within financial services in 2016, therefore reaching the early adopters' phase.  Industry trade groups joined to create the Global Blockchain Forum in 2016, an initiative of the Chamber of Digital Commerce.

In May 2018, Gartner found that only 1% of CIOs indicated any kind of blockchain adoption within their organisations, and only 8% of CIOs were in the short-term "planning or looking at active experimentation with blockchain".  For the year 2019 Gartner reported 5% of CIOs believed blockchain technology was a 'game-changer' for their business. 

Structure and design

A blockchain is a decentralized, distributed, and often public, digital ledger consisting of records called blocks that are used to record transactions across many computers so that any involved block cannot be altered retroactively, without the alteration of all subsequent blocks.   This allows the participants to verify and audit transactions independently and relatively inexpensively.  A blockchain database is managed autonomously using a peer-to-peer network and a distributed timestamping server. They are authenticated by mass collaboration powered by collective self-interests.  Such a design facilitates robust workflow where participants' uncertainty regarding data security is marginal. The use of a blockchain removes the characteristic of infinite reproducibility from a digital asset. It confirms that each unit of value was transferred only once, solving the long-standing problem of double-spending. A blockchain has been described as a value-exchange protocol.  A blockchain can maintain title rights because, when properly set up to detail the exchange agreement, it provides a record that compels offer and acceptance.

Logically, a blockchain can be seen as consisting of several layers: 

infrastructure (hardware)

networking (node discovery, information propagation  and verification)

consensus (proof of work, proof of stake)

data (blocks, transactions)

application (smart contracts/decentralized applications, if applicable)

Blocks

Blocks hold batches of valid transactions that are hashed and encoded into a Merkle tree.  Each block includes the cryptographic hash of the prior block in the blockchain, linking the two. The linked blocks form a chain.  This iterative process confirms the integrity of the previous block, all the way back to the initial block, which is known as the genesis block (Block 0).   To assure the integrity of a block and the data contained in it, the block is usually digitally signed. 

Sometimes separate blocks can be produced concurrently, creating a temporary fork. In addition to a secure hash-based history, any blockchain has a specified algorithm for scoring different versions of the history so that one with a higher score can be selected over others. Blocks not selected for inclusion in the chain are called orphan blocks.  Peers supporting the database have different versions of the history from time to time. They keep only the highest-scoring version of the database known to them. Whenever a peer receives a higher-scoring version (usually the old version with a single new block added) they extend or overwrite their own database and retransmit the improvement to their peers. There is never an absolute guarantee that any particular entry will remain in the best version of history forever. Blockchains are typically built to add the score of new blocks onto old blocks and are given incentives to extend with new blocks rather than overwrite old blocks. Therefore, the probability of an entry becoming superseded decreases exponentially  as more blocks are built on top of it, eventually becoming very low.  :?ch. 08?  For example, bitcoin uses a proof-of-work system, where the chain with the most cumulative proof-of-work is considered the valid one by the network. There are a number of methods that can be used to demonstrate a sufficient level of computation. Within a blockchain the computation is carried out redundantly rather than in the traditional segregated and parallel manner. 

Block time

The block time is the average time it takes for the network to generate one extra block in the blockchain. By the time of block completion, the included data becomes verifiable. In cryptocurrency, this is practically when the transaction takes place, so a shorter block time means faster transactions. The block time for Ethereum is set to between 14 and 15 seconds, while for bitcoin it is on average 10 minutes. 

Hard forks

This section is an excerpt from Fork (blockchain) § Hard fork.

A hard fork is a change to the blockchain protocol that is not backward-compatible and requires all users to upgrade their software in order to continue participating in the network. In a hard fork, the network splits into two separate versions: one that follows the new rules and one that follows the old rules.

For example, Ethereum was hard-forked in 2016 to "make whole" the investors in The DAO, which had been hacked by exploiting a vulnerability in its code. In this case, the fork resulted in a split creating Ethereum and Ethereum Classic chains. In 2014 the Nxt community was asked to consider a hard fork that would have led to a rollback of the blockchain records to mitigate the effects of a theft of 50 million NXT from a major cryptocurrency exchange. The hard fork proposal was rejected, and some of the funds were recovered after negotiations and ransom payment. Alternatively, to prevent a permanent split, a majority of nodes using the new software may return to the old rules, as was the case of bitcoin split on 12 March 2013. 

A more recent hard-fork example is of Bitcoin in 2017, which resulted in a split creating Bitcoin Cash.  The network split was mainly due to a disagreement in how to increase the transactions per second to accommodate for demand. 

Decentralization

By storing data across its peer-to-peer network, the blockchain eliminates some risks that come with data being held centrally.  The decentralized blockchain may use ad hoc message passing and distributed networking. 

In a so-called "51% attack" a central entity gains control of more than half of a network and can then manipulate that specific blockchain record at will, allowing double-spending. 

Blockchain security methods include the use of public-key cryptography. :?5? A public key (a long, random-looking string of numbers) is an address on the blockchain. Value tokens sent across the network are recorded as belonging to that address. A private key is like a password that gives its owner access to their digital assets or the means to otherwise interact with the various capabilities that blockchains now support. Data stored on the blockchain is generally considered incorruptible. 

Every node in a decentralized system has a copy of the blockchain. Data quality is maintained by massive database replication  and computational trust. No centralized "official" copy exists and no user is "trusted" more than any other.  Transactions are broadcast to the network using the software. Messages are delivered on a best-effort basis. Early blockchains rely on energy-intensive mining nodes to validate transactions,  add them to the block they are building, and then broadcast the completed block to other nodes. :?ch. 08? Blockchains use various time-stamping schemes, such as proof-of-work, to serialize changes.  Later consensus methods include proof of stake.  The growth of a decentralized blockchain is accompanied by the risk of centralization because the computer resources required to process larger amounts of data become more expensive. 

Finality

Finality is the level of confidence that the well-formed block recently appended to the blockchain will not be revoked in the future (is "finalized") and thus can be trusted. Most distributed blockchain protocols, whether proof of work or proof of stake, cannot guarantee the finality of a freshly committed block, and instead rely on "probabilistic finality": as the block goes deeper into a blockchain, it is less likely to be altered or reverted by a newly found consensus. 

Byzantine fault tolerance-based proof-of-stake protocols purport to provide so called "absolute finality": a randomly chosen validator proposes a block, the rest of validators vote on it, and, if a supermajority decision approves it, the block is irreversibly committed into the blockchain.  A modification of this method, an "economic finality", is used in practical protocols, like the Casper protocol used in Ethereum: validators which sign two different blocks at the same position in the blockchain are subject to "slashing", where their leveraged stake is forfeited. 

Openness

Open blockchains are more user-friendly than some traditional ownership records, which, while open to the public, still require physical access to view. Because all early blockchains were permissionless, controversy has arisen over the blockchain definition. An issue in this ongoing debate is whether a private system with verifiers tasked and authorized (permissioned) by a central authority should be considered a blockchain.      Proponents of permissioned or private chains argue that the term "blockchain" may be applied to any data structure that batches data into time-stamped blocks. These blockchains serve as a distributed version of multiversion concurrency control (MVCC) in databases.  Just as MVCC prevents two transactions from concurrently modifying a single object in a database, blockchains prevent two transactions from spending the same single output in a blockchain. :?30–31? Opponents say that permissioned systems resemble traditional corporate databases, not supporting decentralized data verification, and that such systems are not hardened against operator tampering and revision.   Nikolai Hampton of Computerworld said that "many in-house blockchain solutions will be nothing more than cumbersome databases," and "without a clear security model, proprietary blockchains should be eyed with suspicion."  

Permissionless (public) blockchain

An advantage to an open, permissionless, or public, blockchain network is that guarding against bad actors is not required and no access control is needed.  This means that applications can be added to the network without the approval or trust of others, using the blockchain as a transport layer. 

Bitcoin and other cryptocurrencies currently secure their blockchain by requiring new entries to include proof of work. To prolong the blockchain, bitcoin uses Hashcash puzzles. While Hashcash was designed in 1997 by Adam Back, the original idea was first proposed by Cynthia Dwork and Moni Naor and Eli Ponyatovski in their 1992 paper "Pricing via Processing or Combatting Junk Mail".

In 2016, venture capital investment for blockchain-related projects was weakening in the USA but increasing in China.  Bitcoin and many other cryptocurrencies use open (public) blockchains. As of April 2018, bitcoin has the highest market capitalization.

Permissioned (private) blockchain

Permissioned blockchains use an access control layer to govern who has access to the network.  It has been argued that permissioned blockchains can guarantee a certain level of decentralization, if carefully designed, as opposed to permissionless blockchains, which are often centralized in practice. 

Disadvantages of permissioned blockchain

Nikolai Hampton argued in Computerworld that "There is also no need for a '51 percent' attack on a private blockchain, as the private blockchain (most likely) already controls 100 percent of all block creation resources. If you could attack or damage the blockchain creation tools on a private corporate server, you could effectively control 100 percent of their network and alter transactions however you wished."  This has a set of particularly profound adverse implications during a financial crisis or debt crisis like the financial crisis of 2007–08, where politically powerful actors may make decisions that favor some groups at the expense of others,  and "the bitcoin blockchain is protected by the massive group mining effort. It's unlikely that any private blockchain will try to protect records using gigawatts of computing power — it's time-consuming and expensive."  He also said, "Within a private blockchain there is also no 'race'; there's no incentive to use more power or discover blocks faster than competitors. This means that many in-house blockchain solutions will be nothing more than cumbersome databases." 

Blockchain analysis

The analysis of public blockchains has become increasingly important with the popularity of bitcoin, Ethereum, litecoin and other cryptocurrencies.  A blockchain, if it is public, provides anyone who wants access to observe and analyse the chain data, given one has the know-how. The process of understanding and accessing the flow of crypto has been an issue for many cryptocurrencies, crypto exchanges and banks.   The reason for this is accusations of blockchain-enabled cryptocurrencies enabling illicit dark market trade of drugs, weapons, money laundering, etc.  A common belief has been that cryptocurrency is private and untraceable, thus leading many actors to use it for illegal purposes. This is changing and now specialised tech companies provide blockchain tracking services, making crypto exchanges, law-enforcement and banks more aware of what is happening with crypto funds and fiat-crypto exchanges. The development, some argue, has led criminals to prioritise the use of new cryptos such as Monero.    The question is about the public accessibility of blockchain data and the personal privacy of the very same data. It is a key debate in cryptocurrency and ultimately in the blockchain. 

Standardisation

In April 2016, Standards Australia submitted a proposal to the International Organization for Standardization to consider developing standards to support blockchain technology. This proposal resulted in the creation of ISO Technical Committee 307, Blockchain and Distributed Ledger Technologies.  The technical committee has working groups relating to blockchain terminology, reference architecture, security and privacy, identity, smart contracts, governance and interoperability for blockchain and DLT, as well as standards specific to industry sectors and generic government requirements. More than 50 countries are participating in the standardization process together with external liaisons such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the European Commission, the International Federation of Surveyors, the International Telecommunication Union (ITU) and the United Nations Economic Commission for Europe (UNECE). 

Many other national standards bodies and open standards bodies are also working on blockchain standards.  These include the National Institute of Standards and Technology  (NIST), the European Committee for Electrotechnical Standardization  (CENELEC), the Institute of Electrical and Electronics Engineers  (IEEE), the Organization for the Advancement of Structured Information Standards (OASIS), and some individual participants in the Internet Engineering Task Force  (IETF).

Centralized blockchain

Although most of blockchain implementation are decentralized and distributed, Oracle launched a centralized blockchain table feature in Oracle 21c database. The Blockchain Table in Oracle 21c database is a centralized blockchain which provide immutable feature. Compared to decentralized blockchains, centralized blockchains normally can provide a higher throughput and lower latency of transactions than consensus-based distributed blockchains.  

Types

Currently, there are at least four types of blockchain networks — public blockchains, private blockchains, consortium blockchains and hybrid blockchains.

Public blockchains

A public blockchain has absolutely no access restrictions. Anyone with an Internet connection can send transactions to it as well as become a validator (i.e., participate in the execution of a consensus protocol). Usually, such networks offer economic incentives for those who secure them and utilize some type of a proof-of-stake or proof-of-work algorithm.

Some of the largest, most known public blockchains are the bitcoin blockchain and the Ethereum blockchain.

Private blockchains

A private blockchain is permissioned.  One cannot join it unless invited by the network administrators. Participant and validator access is restricted. To distinguish between open blockchains and other peer-to-peer decentralized database applications that are not open ad-hoc compute clusters, the terminology Distributed Ledger (DLT) is normally used for private blockchains.

Hybrid blockchains

A hybrid blockchain has a combination of centralized and decentralized features.  The exact workings of the chain can vary based on which portions of centralization and decentralization are used.

Sidechains

A sidechain is a designation for a blockchain ledger that runs in parallel to a primary blockchain.   Entries from the primary blockchain (where said entries typically represent digital assets) can be linked to and from the sidechain; this allows the sidechain to otherwise operate independently of the primary blockchain (e.g., by using an alternate means of record keeping, alternate consensus algorithm, etc.). 

Consortium blockchain

A consortium blockchain is a type of blockchain that combines elements of both public and private blockchains. In a consortium blockchain, a group of organizations come together to create and operate the blockchain, rather than a single entity. The consortium members jointly manage the blockchain network and are responsible for validating transactions. Consortium blockchains are permissioned, meaning that only certain individuals or organizations are allowed to participate in the network. This allows for greater control over who can access the blockchain and helps to ensure that sensitive information is kept confidential.

Consortium blockchains are commonly used in industries where multiple organizations need to collaborate on a common goal, such as supply chain management or financial services. One advantage of consortium blockchains is that they can be more efficient and scalable than public blockchains, as the number of nodes required to validate transactions is typically smaller. Additionally, consortium blockchains can provide greater security and reliability than private blockchains, as the consortium members work together to maintain the network. Some examples of consortium blockchains include Quorum and Hyperledger. 

Uses

Blockchain technology can be integrated into multiple areas. The primary use of blockchains is as a distributed ledger for cryptocurrencies such as bitcoin; there were also a few other operational products that had matured from proof of concept by late 2016.  As of 2016, some businesses have been testing the technology and conducting low-level implementation to gauge blockchain's effects on organizational efficiency in their back office. 

In 2019, it was estimated that around $2.9 billion were invested in blockchain technology, which represents an 89% increase from the year prior. Additionally, the International Data Corp has estimated that corporate investment into blockchain technology will reach $12.4 billion by 2022.  Furthermore, According to PricewaterhouseCoopers (PwC), the second-largest professional services network in the world, blockchain technology has the potential to generate an annual business value of more than $3 trillion by 2030. PwC's estimate is further augmented by a 2018 study that they have conducted, in which PwC surveyed 600 business executives and determined that 84% have at least some exposure to utilizing blockchain technology, which indicates a significant demand and interest in blockchain technology. 

In 2019, the BBC World Service radio and podcast series Fifty Things That Made the Modern Economy identified blockchain as a technology that would have far-reaching consequences for economics and society. The economist and Financial Times journalist and broadcaster Tim Harford discussed why the underlying technology might have much wider applications and the challenges that needed to be overcome.  His first broadcast was on June 29, 2019.

The number of blockchain wallets quadrupled to 40 million between 2016 and 2020. 

A paper published in 2022 discussed the potential use of blockchain technology in sustainable management. 

Cryptocurrencies

Most cryptocurrencies use blockchain technology to record transactions. For example, the bitcoin network and Ethereum network are both based on blockchain.

The criminal enterprise Silk Road, which operated on Tor, utilized cryptocurrency for payments, some of which the US federal government has seized through research on the blockchain and forfeiture. 

Governments have mixed policies on the legality of their citizens or banks owning cryptocurrencies. China implements blockchain technology in several industries including a national digital currency which launched in 2020.  To strengthen their respective currencies, Western governments including the European Union and the United States have initiated similar projects. 

Smart contracts

Blockchain-based smart contracts are proposed contracts that can be partially or fully executed or enforced without human interaction.  One of the main objectives of a smart contract is automated escrow. A key feature of smart contracts is that they do not need a trusted third party (such as a trustee) to act as an intermediary between contracting entities — the blockchain network executes the contract on its own. This may reduce friction between entities when transferring value and could subsequently open the door to a higher level of transaction automation.  An IMF staff discussion from 2018 reported that smart contracts based on blockchain technology might reduce moral hazards and optimize the use of contracts in general. But "no viable smart contract systems have yet emerged." Due to the lack of widespread use, their legal status was unclear.  

Financial services

According to Reason, many banks have expressed interest in implementing distributed ledgers for use in banking and are cooperating with companies creating private blockchains,    and according to a September 2016 IBM study, this is occurring faster than expected. 

Banks are interested in this technology not least because it has the potential to speed up back office settlement systems.  Moreover, as the blockchain industry has reached early maturity institutional appreciation has grown that it is, practically speaking, the infrastructure of a whole new financial industry, with all the implications which that entails. 

Banks such as UBS are opening new research labs dedicated to blockchain technology in order to explore how blockchain can be used in financial services to increase efficiency and reduce costs.  

Berenberg, a German bank, believes that blockchain is an "overhyped technology" that has had a large number of "proofs of concept", but still has major challenges, and very few success stories. 

The blockchain has also given rise to initial coin offerings (ICOs) as well as a new category of digital asset called security token offerings (STOs), also sometimes referred to as digital security offerings (DSOs).  STO/DSOs may be conducted privately or on public, regulated stock exchange and are used to tokenize traditional assets such as company shares as well as more innovative ones like intellectual property, real estate,  art, or individual products. A number of companies are active in this space providing services for compliant tokenization, private STOs, and public STOs.

Games

Blockchain technology, such as cryptocurrencies and non-fungible tokens (NFTs), has been used in video games for monetization. Many live-service games offer in-game customization options, such as character skins or other in-game items, which the players can earn and trade with other players using in-game currency. Some games also allow for trading of virtual items using real-world currency, but this may be illegal in some countries where video games are seen as akin to gambling, and has led to gray market issues such as skin gambling, and thus publishers typically have shied away from allowing players to earn real-world funds from games.  Blockchain games typically allow players to trade these in-game items for cryptocurrency, which can then be exchanged for money. 

The first known game to use blockchain technologies was CryptoKitties, launched in November 2017, where the player would purchase NFTs with Ethereum cryptocurrency, each NFT consisting of a virtual pet that the player could breed with others to create offspring with combined traits as new NFTs.   The game made headlines in December 2017 when one virtual pet sold for more than US$100,000.  CryptoKitties also illustrated scalability problems for games on Ethereum when it created significant congestion on the Ethereum network in early 2018 with approximately 30% of all Ethereum transactions being for the game.  

By the early 2020s, there had not been a breakout success in video games using blockchain, as these games tend to focus on using blockchain for speculation instead of more traditional forms of gameplay, which offers limited appeal to most players. Such games also represent a high risk to investors as their revenues can be difficult to predict.  However, limited successes of some games, such as Axie Infinity during the COVID-19 pandemic, and corporate plans towards metaverse content, refueled interest in the area of GameFi, a term describing the intersection of video games and financing typically backed by blockchain currency, in the second half of 2021.  Several major publishers, including Ubisoft, Electronic Arts, and Take Two Interactive, have stated that blockchain and NFT-based games are under serious consideration for their companies in the future. 

In October 2021, Valve Corporation banned blockchain games, including those using cryptocurrency and NFTs, from being hosted on its Steam digital storefront service, which is widely used for personal computer gaming, claiming that this was an extension of their policy banning games that offered in-game items with real-world value. Valve's prior history with gambling, specifically skin gambling, was speculated to be a factor in the decision to ban blockchain games.  Journalists and players responded positively to Valve's decision as blockchain and NFT games have a reputation for scams and fraud among most PC gamers,   and Epic Games, which runs the Epic Games Store in competition to Steam, said that they would be open to accepted blockchain games in the wake of Valve's refusal. 

Supply chain

There have been several different efforts to employ blockchains in supply chain management.

Precious commodities mining — Blockchain technology has been used for tracking the origins of gemstones and other precious commodities. In 2016, The Wall Street Journal reported that the blockchain technology company Everledger was partnering with IBM's blockchain-based tracking service to trace the origin of diamonds to ensure that they were ethically mined.  As of 2019, the Diamond Trading Company (DTC) has been involved in building a diamond trading supply chain product called Tracr. 

Food supply — As of 2018, Walmart and IBM were running a trial to use a blockchain-backed system for supply chain monitoring for lettuce and spinach — all nodes of the blockchain were administered by Walmart and were located on the IBM cloud. 

Fashion industry — There is an opaque relationship between brands, distributors, and customers in the fashion industry, which will prevent the sustainable and stable development of the fashion industry. Blockchain makes up for this shortcoming and makes information transparent, solving the difficulty of sustainable development of the industry. 

Domain names

There are several different efforts to offer domain name services via the blockchain. These domain names can be controlled by the use of a private key, which purports to allow for uncensorable websites. This would also bypass a registrar's ability to suppress domains used for fraud, abuse, or illegal content. 

Namecoin is a cryptocurrency that supports the ".bit" top-level domain (TLD). Namecoin was forked from bitcoin in 2011. The .bit TLD is not sanctioned by ICANN, instead requiring an alternative DNS root.  As of 2015, .bit was used by 28 websites, out of 120,000 registered names.  Namecoin was dropped by OpenNIC in 2019, due to malware and potential other legal issues.  Other blockchain alternatives to ICANN include The Handshake Network,  EmerDNS, and Unstoppable Domains. 

Specific TLDs include ".eth", ".luxe", and ".kred", which are associated with the Ethereum blockchain through the Ethereum Name Service (ENS). The .kred TLD also acts as an alternative to conventional cryptocurrency wallet addresses as a convenience for transferring cryptocurrency. 

Other uses

Blockchain technology can be used to create a permanent, public, transparent ledger system for compiling data on sales, tracking digital use and payments to content creators, such as wireless users  or musicians.  The Gartner 2019 CIO Survey reported 2% of higher education respondents had launched blockchain projects and another 18% were planning academic projects in the next 24 months.  In 2017, IBM partnered with ASCAP and PRS for Music to adopt blockchain technology in music distribution.  Imogen Heap's Mycelia service has also been proposed as a blockchain-based alternative "that gives artists more control over how their songs and associated data circulate among fans and other musicians."  

New distribution methods are available for the insurance industry such as peer-to-peer insurance, parametric insurance and microinsurance following the adoption of blockchain.   The sharing economy and IoT are also set to benefit from blockchains because they involve many collaborating peers.  The use of blockchain in libraries is being studied with a grant from the U.S. Institute of Museum and Library Services. 

Other blockchain designs include Hyperledger, a collaborative effort from the Linux Foundation to support blockchain-based distributed ledgers, with projects under this initiative including Hyperledger Burrow (by Monax) and Hyperledger Fabric (spearheaded by IBM).    Another is Quorum, a permissioned private blockchain by JPMorgan Chase with private storage, used for contract applications. 

Oracle introduced a blockchain table feature in its Oracle 21c database.  

Blockchain is also being used in peer-to-peer energy trading.   

Blockchain could be used in detecting counterfeits by associating unique identifiers to products, documents and shipments, and storing records associated with transactions that cannot be forged or altered.   It is however argued that blockchain technology needs to be supplemented with technologies that provide a strong binding between physical objects and blockchain systems,  as well as provisions for content creator verification ala KYC standards.  The EUIPO established an Anti-Counterfeiting Blockathon Forum, with the objective of "defining, piloting and implementing" an anti-counterfeiting infrastructure at the European level.   The Dutch Standardisation organisation NEN uses blockchain together with QR Codes to authenticate certificates. 

2022 Jan 30 Beijing and Shanghai are among the cities designated by China to trial blockchain applications. 

Blockchain interoperability

With the increasing number of blockchain systems appearing, even only those that support cryptocurrencies, blockchain interoperability is becoming a topic of major importance. The objective is to support transferring assets from one blockchain system to another blockchain system. Wegner  stated that "interoperability is the ability of two or more software components to cooperate despite differences in language, interface, and execution platform". The objective of blockchain interoperability is therefore to support such cooperation among blockchain systems, despite those kinds of differences.

There are already several blockchain interoperability solutions available.  They can be classified into three categories: cryptocurrency interoperability approaches, blockchain engines, and blockchain connectors.

Several individual IETF participants produced the draft of a blockchain interoperability architecture. 

Energy consumption concerns

Some cryptocurrencies use blockchain mining — the peer-to-peer computer computations by which transactions are validated and verified. This requires a large amount of energy. In June 2018, the Bank for International Settlements criticized the use of public proof-of-work blockchains for their high energy consumption.   

Early concern over the high energy consumption was a factor in later blockchains such as Cardano (2017), Solana (2020) and Polkadot (2020) adopting the less energy-intensive proof-of-stake model. Researchers have estimated that Bitcoin consumes 100,000 times as much energy as proof-of-stake networks.  

In 2021, a study by Cambridge University determined that Bitcoin (at 121 terawatt-hours per year) used more electricity than Argentina (at 121TWh) and the Netherlands (109TWh).  According to Digiconomist, one bitcoin transaction required 708 kilowatt-hours of electrical energy, the amount an average U.S. household consumed in 24 days. 

In February 2021, U.S. Treasury secretary Janet Yellen called Bitcoin "an extremely inefficient way to conduct transactions", saying "the amount of energy consumed in processing those transactions is staggering".  In March 2021, Bill Gates stated that "Bitcoin uses more electricity per transaction than any other method known to mankind", adding "It's not a great climate thing." 

Nicholas Weaver, of the International Computer Science Institute at the University of California, Berkeley, examined blockchain's online security, and the energy efficiency of proof-of-work public blockchains, and in both cases found it grossly inadequate.   The 31TWh-45TWh of electricity used for bitcoin in 2018 produced 17-23 million tonnes of CO2.   By 2022, the University of Cambridge and Digiconomist estimated that the two largest proof-of-work blockchains, Bitcoin and Ethereum, together used twice as much electricity in one year as the whole of Sweden, leading to the release of up to 120 million tonnes of CO2 each year. 

Some cryptocurrency developers are considering moving from the proof-of-work model to the proof-of-stake model. 

Academic research

In October 2014, the MIT Bitcoin Club, with funding from MIT alumni, provided undergraduate students at the Massachusetts Institute of Technology access to $100 of bitcoin. The adoption rates, as studied by Catalini and Tucker (2016), revealed that when people who typically adopt technologies early are given delayed access, they tend to reject the technology.  Many universities have founded departments focusing on crypto and blockchain, including MIT, in 2017. In the same year, Edinburgh became "one of the first big European universities to launch a blockchain course", according to the Financial Times. 

Adoption decision

Motivations for adopting blockchain technology (an aspect of innovation adoptation) have been investigated by researchers. For example, Janssen, et al. provided a framework for analysis,  and Koens & Poll pointed out that adoption could be heavily driven by non-technical factors.  Based on behavioral models, Li  has discussed the differences between adoption at the individual level and organizational levels.

Collaboration

Scholars in business and management have started studying the role of blockchains to support collaboration.   It has been argued that blockchains can foster both cooperation (i.e., prevention of opportunistic behavior) and coordination (i.e., communication and information sharing). Thanks to reliability, transparency, traceability of records, and information immutability, blockchains facilitate collaboration in a way that differs both from the traditional use of contracts and from relational norms. Contrary to contracts, blockchains do not directly rely on the legal system to enforce agreements.  In addition, contrary to the use of relational norms, blockchains do not require a trust or direct connections between collaborators.

Blockchain and internal audit

The need for internal audits to provide effective oversight of organizational efficiency will require a change in the way that information is accessed in new formats.  Blockchain adoption requires a framework to identify the risk of exposure associated with transactions using blockchain. The Institute of Internal Auditors has identified the need for internal auditors to address this transformational technology. New methods are required to develop audit plans that identify threats and risks. The Internal Audit Foundation study, Blockchain and Internal Audit, assesses these factors.  The American Institute of Certified Public Accountants has outlined new roles for auditors as a result of blockchain. 

Journals

In September 2015, the first peer-reviewed academic journal dedicated to cryptocurrency and blockchain technology research, Ledger, was announced. The inaugural issue was published in December 2016.  The journal covers aspects of mathematics, computer science, engineering, law, economics and philosophy that relate to cryptocurrencies.   The journal encourages authors to digitally sign a file hash of submitted papers, which are then timestamped into the bitcoin blockchain. Authors are also asked to include a personal bitcoin address on the first page of their papers for non-repudiation purposes. 

A blockchain is a shared database that records transactions between two parties in an immutable ledger. Blockchain documents and confirms pseudonymous ownership of all transactions in a verifiable and sustainable way. After a transaction is validated and cryptographically verified by other participants or nodes in the network, it is made into a "block" on the blockchain. A block contains information about the time the transaction occurred, previous transactions, and details about the transaction. Once recorded as a block, transactions are ordered chronologically and cannot be altered. This technology rose to popularity after the creation of Bitcoin, the first application of blockchain technology, which has since catalyzed other cryptocurrencies and applications. 

Due to its nature of decentralization, transactions and data are not verified and owned by one single entity as they are in typical systems. Rather, the validity of transactions are confirmed by the form of majority-rule in which nodes or computers that have access to the network, if the network comes to a consensus of the new transaction then it is added. Blockchain technology secures and authenticates transactions and data through cryptography. With the rise and widespread adoption of technology, data breaches have become frequent. User information and data are often stored, mishandled, and misused, causing a threat to personal privacy. Advocates argue for the widespread adoption of blockchain technology because of its ability to increase user privacy, data protection, and data ownership. 

Blockchain and privacy protection

Private and public keys

A key aspect of privacy in blockchains is the use of private and public keys. Blockchain systems use asymmetric cryptography to secure transactions between users. In these systems, each user has a public and private key. These keys are random strings of numbers and are cryptographically related. It is mathematically impossible for a user to guess another user's private key from their public key. This provides an increase in security and protects users from hackers. Public keys can be shared with other users in the network because they give away no personal data. Each user has an address that is derived from the public key using a hash function. These addresses are used to send and receive assets on the blockchain, such as cryptocurrency. Because blockchain networks are shared to all participants, users can view past transactions and activity that has occurred on the blockchain. 

Senders and receivers of past transactions are represented and signified by their addresses; users' identities are not revealed. Public addresses do not reveal personal information or identification; rather, they act as pseudonymous identities. It is suggested by Joshi, Archana (2018) that users do not use a public address more than once; this tactic avoids the possibility of a malicious user tracing a particular address' past transactions in an attempt to reveal information. Private keys are used to protect user identity and security through digital signatures. Private keys are used to access funds and personal wallets on the blockchain; they add a layer of identity authentication. When individuals wish to send money to other users, they must provide a digital signature that is produced when provided with the private key. This process protects against theft of funds. 

Peer-to-peer network

Blockchain technology arose from the creation of Bitcoin. In 2008, the creator or creators who go by the alias Satoshi Nakamoto released a paper describing the technology behind blockchains. In his paper, he explained a decentralized network that was characterized by peer-to-peer transactions involving cryptocurrencies or electronic money. In typical transactions carried out today, users put trust into central authorities to hold their data securely and execute transactions. 

In large corporations, a large amount of users' personal data is stored on single devices, posing a security risk if an authority's system is hacked, lost, or mishandled. Blockchain technology aims to remove this reliance on a central authority. To achieve this, blockchain functions in a way where nodes or devices in a blockchain network can confirm the validity of a transaction rather than a third party. In this system, transactions between users (such as sending and receiving cryptocurrency) are broadcast to every node in the network. Before the transaction is recorded as a block on the blockchain, nodes must ensure a transaction is valid. Nodes must check past transactions of the spender to ensure he/she did not double spend or spend more funds than they own. 

After nodes confirm a block is valid, consensus protocols such as proof of work and proof of stake are deployed by miners. These protocols allow nodes to reach a state of agreement on the order and number of transactions. Once a transaction is verified, it is published on the blockchain as a block. Once a block is created, it cannot be altered. Through blockchain's decentralized nature and elimination of the need for a central authority, user privacy is increased. Peer-to-peer networks allow users to control their data, decreasing the threat of third parties to sell, store, or manipulate personal information. 

Cryptographic methods for Privacy using Blockchains

Zero-knowledge proofs

A zero-knowledge proof (known as ZKP) is a cryptographic method by which one party (the prover) can prove to another party (the verifier) that a given statement is true, without conveying any information apart from the fact that the statement is indeed true. The "prover" does not reveal any information about the transaction. Such proofs are typically introduced into blockchain systems using ZK-SNARKs in order to increase privacy in blockchains. In typical "non-private" public blockchain systems such as Bitcoin, a block contains information about a transaction, such as the sender and receiver's addresses and the amount sent. This public information can be used in conjunction with Clustering algorithms to link these "pseudo-anonymous" addresses to users or real-world identities. Since zero-knowledge proofs reveal nothing about a transaction, except that it is valid, the effectiveness of such techniques are drastically reduced. A prominent example of a cryptocurrency using ZK proofs is Zcash.

Ring signatures

Another method of obfuscating the flow of transactions on the public blockchain are Ring signatures, a method used by Monero.

Mixing

Cryptocurrency tumblers can also be used as a method to increase privacy even in a pseudoanonymous cryptocurrency. Additionally, instead of using mixers as an add-on service, the mixing of public addresses can be built-in as a method in the blockchain system, as in Dash.

The popular mixing service Tornado Cash was sanctioned by the US Department of Treasury in early August 2022, who accused it of laundering $455 million in stolen cryptocurrency by the Lazarus Group. The sanctions made it illegal for US citizens, residents and companies to use the service. 

Comparison of blockchain privacy systems

Private blockchains

Private blockchains (or permissioned blockchains) are different from public blockchains, which are available to any node that wishes to download the network. Critics of public blockchains say because everyone can download a blockchain and access the history of transactions, there is not much privacy. In private blockchains, nodes must be granted access to participate, view transactions, and deploy consensus protocols. Because transactions listed on a private blockchain are private, they ensure an extra layer of privacy. Because private blockchains have restricted access and nodes must be specifically selected to view and participate in a network, some argue that private blockchains grant more privacy to users. While private blockchains are considered the most realistic way to adopt blockchain technology into business to maintain a high level of privacy, there are disadvantages. For example, private blockchains delegate specific actors to verify blocks and transactions. Although some argue that this provides efficiency and security, concerns have arisen that because control and verification of transactions are in the hands of a central entity, private blockchains are not truly decentralized. 

Hybrid blockchains

Hybrid blockchains allow more flexibility to determine which data remain private and which data can be shared publicly. A hybrid approach is compliant with GDPR and allows entities to store data on the cloud of their choice in order to be in compliance with local laws protecting users' privacy. A hybrid blockchain contains some of the characteristics of both private and public blockchains, though not every hybrid blockchain contains the same characteristics. Bitcoin and Ethereum do not share the same characteristics, although they are both public blockchains. 

Use cases for privacy protection

Financial transactions

After Satoshi Nakamoto spurred the creation of blockchain technology through Bitcoin, cryptocurrencies rose in popularity. Cryptocurrencies are digital assets that can be used as an alternative form of payment to fiat money. In current financial systems, there exists many privacy concerns and threats. Centralization is an obstacle in typical data-storage systems. When individuals deposit money, a third party intermediary is necessary. When sending money to another user, individuals must trust that a third party will complete this task. Blockchain decreases the need for this trust in a central authority. Cryptographic functions allow individuals to send money to other users. Because of Bitcoin's widespread recognition and sense of anonymity, criminals have taken advantage of this by purchasing illegal items using Bitcoin. Through the use of cryptocurrencies and its pseudonymous keys that signify transactions, illegal purchases are difficult to trace to an individual. Due to the potential and security of blockchains, many banks are adopting business models that use this technology. 

Health care records

In recent years, more than 100 million health care records have been breached. In attempts to combat this issue, solutions often result in the inaccessibility of health records. Health providers regularly send data to other providers. This often results in mishandling of data, losing records, or passing on inaccurate and old data. In some cases, only one copy of an updated health record exists; this can result in the loss of information. Health records often contain personal information such as names, social security numbers and home addresses. Overall, it is argued by some that the current system of transferring health information compromises patient privacy to make records easy to transfer. 

As blockchain technology expanded and developed in recent years, many have pressed to shift health record storage onto the blockchain. Rather than having both physical and electronic copies of records, blockchains could allow the shift to electronic health records (EHR). Medical records on the blockchain would be in the control of the patient rather than a third party, through the patients' private and public keys. Patients could then control access to their health records, making transferring information less cumbersome. Because blockchain ledgers are immutable, health information could not be deleted or tampered with. Blockchain transactions would be accompanied by a timestamp, allowing those with access to have updated information. 

Legal

The notarization of legal documents protects the privacy of individuals. Currently , documents must be verified through a third party or a notary. Notarization fees can be high. Transferring documents takes time and can lead to lost or mishandled information. Many are pressing for the adoption of blockchain technology for the storage legal documents. Documents cannot be tampered with and can be easily accessed by those who are granted permission to access them. Information is protected from theft and mishandling. Another possible use of blockchain technology is the execution of legal contracts using smart contracts, in which nodes automatically execute terms of a contract. By using smart contracts, people will no longer rely on a third party to manage contracts, allowing an increase in privacy of personal information. 

Shipping and logistics

Businesses and individuals may purchase goods which need to be shipped from the seller to the buyer. Shipment of goods is normally accompanied by shipping documents like a bill of lading. Smart bill of lading relies on blockchain technology and buyers do not need to spend more on the issue of these documents. Also with the blockchain technology, goods can be tracked anytime and the data is updated regularly ensuring real time management of shipments. The buyer and only the party given the shipping contract can view the real time data related to the shipment increasing the privacy of the process. 

Legality of blockchain and privacy

GDPR

With the April 2016 adoption of the General Data Protection Regulation in the European Union, questions regarding blockchain's compliance with the act have arisen. GDPR applies to those who process data in the EU and those who process data outside the EU for people inside the EU. Personal data is "any information relating to an identified or identifiable natural person". Because identities on a blockchain are associated with an individual's public and private keys, this may fall under the category of personal data because public and private keys enable pseudonymity and are not necessarily connected to an identity. A key part of the GDPR lies in a citizen's right to be forgotten, or data erasure. The GDPR allows individuals to request that data associated with them to be erased if it is no longer relevant. Due to the blockchain's nature of immutability, potential complications if an individual who made transactions on the blockchain requests their data to be deleted exist. Once a block is verified on the blockchain, it is impossible to delete it. 

IRS

Because cryptocurrency prices fluctuate, many treat the purchase of cryptocurrencies as an investment. By purchasing these coins, buyers hope to later sell them at a higher price. Internal Revenue Service (IRS) are currently facing struggles because many bitcoin holders do not include revenue from cryptocurrencies in their income reports, especially those who engage in many microtransactions. In response to these concerns, IRS issued a notice that people must apply general tax principles to cryptocurrency and treat the purchase of it as an investment or stock. IRS has enacted that if people fail to report their income from cryptocurrency, they could be subject to civil penalties and fines. In attempts to enforce these rules and avoid potential tax fraud, IRS has called on Coinbase to report users who have sent or received more than $US20,000 worth of cryptocurrency in a year. The nature of blockchain technology makes enforcement difficult. Because blockchains are decentralized, entities cannot keep track of purchases and activity of a user. Pseudonymous addresses make it difficult to link identities with users, being a perfect outlet for people to launder money. 

Blockchain Alliance

Because virtual currencies and the blockchain's protection of identity has proved to be a hub for criminal purchases and activity, FBI and Justice Department created Blockchain Alliance. This team aims to identify and enforce legal restrictions on the blockchain to combat criminal activities through open dialogue on a private-public forum. This allows law enforcers to fight the illegal exploitation of the technology. Examples of criminal activity on the blockchain include hacking cryptocurrency wallets and stealing funds. Because user identities are not tied to public addresses, it is difficult to locate and identify criminals. 

Fair information practices

Blockchain has been acknowledged as a way to solve fair information practices, a set of principles relating to privacy practices and concerns for users. Blockchain transactions allow users to control their data through private and public keys, allowing them to own it. Third-party intermediaries are not allowed to misuse and obtain data. If personal data are stored on the blockchain, owners of such data can control when and how a third party can access it. In blockchains, ledgers automatically include an audit trail that ensures transactions are accurate. 

Concerns regarding blockchain privacy

Transparency

Although blockchain technology enables users to control their own data without necessarily relying on third parties, certain characteristics may infringe on user privacy. Public blockchains are decentralized and allow any node to access transactions, events and actions of users. Block explorers can be used to trace the financial history of a wallet address, which can be combined with OSINT research to develop profiles of criminal actors or potential scamming victims. 

Decentralization

Due to blockchain's decentralized nature, a central authority is not checking for malicious users and attacks. Users might be able to hack the system anonymously and escape. Because public blockchains are not controlled by a third party, a false transaction enacted by a hacker who has a user's private key cannot be stopped. Because blockchain ledgers are shared and immutable, it is impossible to reverse a malicious transaction. 

Private keys

Private keys provide a way to prove ownership and control of cryptocurrency. If one has access to another's private key, one can access and spend these funds. Because private keys are crucial to accessing and protecting assets on the blockchain, users must store them safely. Storing the private key on a computer, flashdrive or telephone can pose potential security risks if the device is stolen or hacked. If such a device is lost, the user no longer have access to the cryptocurrency. Storing it on physical media, such as a piece of paper, also leaves the private key vulnerable to loss, theft or damage. 

Cases of privacy failure

MtGox

In 2014, MtGox was the world's largest Bitcoin exchange at the time; it was located in Tokyo, Japan. The exchange suffered the largest blockchain hack of all time. During 2014, MtGox held an enormous portion of the Bitcoin market, accounting for more than half of the cryptocurrency at the time. Throughout February, hackers infiltrated the exchange, stealing $US450 million in Bitcoin. Many in the blockchain community were shocked because blockchain technology is often associated with security. This was the first major hack to occur in the space. Although analysts tracked the public address of the robbers by looking at the public record of transactions, the perpetrators were not identified. This is a result of the pseudonymity of blockchain transactions. 

DAO Hack

While blockchain technology is anticipated to solve privacy issues such as data breaching, tampering, and other threats, it is not immune to malicious attacks. In 2016, the DAO opened a funding window for a particular project. The system was hacked during this period, resulting in the loss of cryptocurrency then worth $US3.6 million from the Ether fund. Due to the ever-changing price of cryptocurrencies, the amount stolen has been estimated at $US64-100. 

Coinbase

Coinbase, the world's largest cryptocurrency exchange that allows users to store, buy, and sell cryptocurrency, has faced multiple hacks since its founding in 2012. Users have reported that due to its log-in process that uses personal telephone numbers and email addresses, hackers have targeted the numbers and emails of well-known individuals and CEOS in the blockchain space. Hackers then used the email addresses to change the users' verification numbers, consequently stealing thousands of dollars worth of cryptocurrency from Coinbase user wallets. 

By North Korea

See also: Lazarus Group

In January 2022 a report by blockchain analysis company Chainalysis found that state-backed North Korean hackers had stolen nearly $400 million in cryptocurrency in 2021. A UN panel also stated that North Korea has used stolen crypto funds to fund its missile programs despite international sanctions. 

Privacy vs. auditing in blockchains

The introduction of "private" or "anonymous" cryptocurrencies such as ZCash and Monero, highlighted the problem of blockchain auditing, with exchanges and government entities limiting use of those currencies. Therefore, as the notions of privacy and auditing in blockchains are contradictory, auditing blockchains with privacy characteristics has become a research focus of the academic community. 

The legal status of cryptocurrencies varies substantially from one jurisdiction to another, and is still undefined or changing in many of them. Whereas, in the majority of countries the usage of cryptocurrency isn't in itself illegal, its status and usability as a means of payment (or a commodity) varies, with differing regulatory implications. 

While some states have explicitly allowed its use and trade, others have banned or restricted it. Likewise, various government agencies, departments, and courts have classified cryptocurrencies differently.

Detail by intergovernmental organization

European Union Legal

The European Union has passed no specific legislation relative to the status of bitcoin as a currency, but has stated that VAT/GST is not applicable to the conversion between traditional (fiat) currency and bitcoin.

VAT/GST and other taxes (such as income tax) still apply to transactions made using bitcoins for goods and services. : European Union 

In October 2015, the Court of Justice of the European Union ruled that "The exchange of traditional currencies for units of the 'bitcoin' virtual currency is exempt from VAT" and that "Member States must exempt, inter alia, transactions relating to 'currency, bank notes and coins used as legal tender'", making bitcoin a currency as opposed to being a commodity. According to judges, the tax should not be charged because bitcoins should be treated as a means of payment. 

According to the European Central Bank, traditional financial sector regulation is not applicable to bitcoin because it does not involve traditional financial actors. Others in the EU have stated, however, that existing rules can be extended to include bitcoin and bitcoin companies. 

The European Central Bank classifies bitcoin as a convertible decentralized virtual currency. In July 2014 the European Banking Authority advised European banks not to deal in virtual currencies such as bitcoin until a regulatory regime was in place. 

In 2016 the European Parliament's proposal to set up a taskforce to monitor virtual currencies to combat money laundering and terrorism, passed by 542 votes to 51, with 11 abstentions, has been sent to the European Commission for consideration. 

In January 2022, Erik Thedéen, vice-chair of the European Securities and Markets Authority, called for an EU ban on proof of work crypto-mining to favor the proof of stake model and fight climate change; 

G7 Legal

In 2013 the G7's Financial Action Task Force issued the following statement in guidelines which may be applicable to companies involved in transmitting bitcoin and other currencies, "Internet-based payment services that allow third party funding from anonymous sources may face an increased risk of [money laundering/terrorist financing]." They concluded that this may "pose challenges to countries in [anti-money laundering/counter terrorist financing] regulation and supervision". 

Alphabetical index to classifications

Algeria

Argentina

Australia

Austria

Bangladesh

Belarus

Belgium

Bolivia

Bosnia and Herzegovina

Brazil

Bulgaria

Cambodia

Canada

Chile

China (Hong Kong SAR)

Colombia

Costa Rica

Croatia

Cyprus

Czech Republic

Denmark

Ecuador

Egypt

Estonia

Finland

France

Georgia

Germany

Greece

Hungary

Iceland

India

Indonesia

Iran

Ireland

Italy

Israel

Jamaica

Japan

Jordan

Kosovo

Kyrgyzstan

Korea (South)

Lebanon

Lithuania

Luxembourg

Macedonia

Malaysia

Malta

Mexico

Namibia

Nepal

Netherlands

New Zealand

Nicaragua

Niger

Nigeria

Norway

Pakistan

Philippines

Poland

Portugal

Romania

Russia

Saudi Arabia

Singapore

Slovakia

Slovenia

South Africa

Spain

Sweden

Switzerland

Taiwan

Thailand

Trinidad and Tobago

Turkey

United Arab Emirates

United Kingdom

United States

Uzbekistan

Venezuela

Vietnam

Zimbabwe

Africa

Northern Africa

Algeria Illegal

According to the "Journal Officiel" (28 December 2017):

Art. 117. — The purchase, sale, use, and holding of so-called virtual currency is prohibited. Virtual currency is that used by internet users via the web. It is characterized by the absence of physical support such as coins, notes, payments by cheque or credit card. Any breach of this provision is punishable in accordance with the laws and regulations in force. : 82 

Egypt Illegal

"Egypt's Dar al-Ifta, the primary Islamic legislator in Egypt, has issued a religious decree classifying commercial transactions in bitcoin as haram (prohibited under Islamic law)." 

Morocco Illegal

On 20 November 2017 the exchange office issued a public statement in which it declared, "The Office des Changes wishes to inform the general public that the transactions via virtual currencies constitute an infringement of the exchange regulations, liable to penalties and fines provided for by [existing laws] in force." 

The following day, the monetary authorities also reacted in a statement issued jointly by the Ministry of Economy and Finance, Bank Al-Maghrib and the Moroccan Capital Market Authority (AMMC), warning against risks associated with bitcoin, which may be used "for illicit or criminal purposes, including money laundering and terrorist financing". 

On 19 December 2017, Abdellatif Jouahri, governor of Bank Al-Maghrib, said at a press conference held in Rabat during the last quarterly meeting of the Bank Al-Maghrib's Board of 2017 that bitcoin is not a currency but a "financial asset". He also warned of its dangers and called for a framework to be put in place for consumer protection. 

Western Africa

Nigeria Legal / Banking ban

As of 17 January 2017, The Central Bank of Nigeria (CBN) has passed a circular to inform all Nigerian banks that bank transactions in bitcoin and other virtual currencies have been banned in Nigeria. 

Later on, a committee was set up by the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) to look into the possibility of the country adopting the technology driving bitcoin and other digital currencies – blockchain. The committee has submitted its report but "several sub-committees are still working on the issue" according to the Director, Banking & Payments System Department at CBN, Mr. ‘Dipo Fatokun. 

On 5 February 2021, The Central Bank of Nigeria issued a circular informing financial institutions in Nigeria that sequel to their circular in January 2017, dealing in cryptocurrency or facilitating payment for same remains prohibited and would attract a stiff penalty. 

East & Central Africa

Tanzania Legal / Use discouraged by central bank

While not officially banned, the Bank of Tanzania advises not to use cryptocurrency, stressing that the Tanzanian shilling is the only acceptable legal tender. 

Central African Republic Legal

On 22 April 2022 parliament of the Central African Republic voted for the cryptocurrency law which was promulgated on 27 April officially making Bitcoin a legal tender in the country. 

Southeast Africa

Horn of Africa

Indian Ocean States

Mauritius Legal

The Financial Services Commission of Mauritius considers cryptocurrencies to be regulated as a Digital Asset under the Financial Services Act 2007, and while it cautions investors they are not protected by any statutory compensation agreements, they are legal. 

Southern Africa

Angola Legal

While government officials have advised against the use of bitcoin, there is no legislation against it and it remains fully legal. 

South Africa Legal

In December 2014 the Reserve Bank of South Africa issued a position paper on virtual currencies whereby it declared that virtual currency had "no legal status or regulatory framework". The South African Revenue Service classified bitcoin as an intangible asset. 

Namibia Legal / Banking ban

In September 2017 the Bank of Namibia issued a position paper on virtual currencies entitled wherein it declared cryptocurrency exchanges are not allowed and cryptocurrency cannot be accepted as payment for goods and services.

Zimbabwe Unknown

The Reserve Bank Of Zimbabwe has banned the banking use of crypto currency, however the High Court Order lifted the ban. The Reserve Bank have filed a notice of objection with the Court. However, no source indicating a resolution of the matter was located. 

Americas

North America

Canada Legal / Banking ban

Companies dealing in virtual currencies must register with the national financial intelligence agency Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), implement compliance programs, keep the required records, report suspicious or terrorist-related transactions, and determine if any of their customers are "politically exposed persons."

The law applies to non-Canadian virtual currency exchanges if they have Canadian customers. Banks may not open or maintain accounts or have a correspondent banking relationship with companies dealing in virtual currencies if that company is not registered with FINTRAC.

Dealers in digital currency are regulated as money services businesses. 

The Autorité des marchés financiers (AMF), the financial regulator in the province of Quebec, has declared that some bitcoin related business models, including exchanges and ATMs, are regulated under its current MSB Act. 

As of April 2018, the Bank of Montreal (BMO) announced that it would ban its credit and debit card customers from participating in cryptocurrency purchases with their cards. This is following another banking ban in Canada from Toronto-Dominion Bank (TD). 

United States Legal

The U.S. Treasury classified bitcoin as a convertible decentralized virtual currency in 2013. The Commodity Futures Trading Commission (CFTC), classified bitcoin as a commodity in September 2015. Per the Internal Revenue Service (IRS), bitcoin is taxed as a property. 

Bitcoin was mentioned in a U.S. Supreme Court opinion (in the case of Wisconsin Central Ltd. v. United States) on 21 June 2018. In an opinion, the U.S. Supreme Court mentioned that the definition of money has changed over time and that "perhaps one day employees will be paid in Bitcoin or some other type of cryptocurrency..." 

If money services businesses, including cryptocurrency exchanges, money transmitters, and anonymizing services (known as "mixers" or "tumblers") do a substantial amount of business in the U.S., according to Financial Crimes Enforcement Network (FinCEN) director Kenneth Blanco in 2018, they are required to: 

register with the U.S. FinCEN as a money services business

design and enforce an anti-money laundering (AML) program, and

keep appropriate records and make reports to FinCEN, including Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs)

As of August 2018, U.S. FinCEN had been receiving more than 1,500 SARs per month involving cryptocurrencies. Seventeen other countries have similar AML requirements. 

In September 2016, in a federal court case involving a person operating an unlicensed money transmitting businesses, the U.S. District Court for the Southern District of New York ruled that "Bitcoins are funds within the plain meaning of that term. Bitcoins can be accepted as a payment for goods and services or bought directly from an exchange with a bank account. They therefore function as pecuniary resources and are used as a medium of exchange and a means of payment." 

Mexico Legal

Bitcoin was legal in Mexico as of 2017, with plans to regulate it as a virtual asset by the FinTech Law. 

Central America

Costa Rica Not considered currency

In October 2017, the Central Bank of Costa Rica issued a statement that Bitcoin and cryptocurrencies are not considered currencies, are not backed by law, and cannot be traded on Costa Rica's national payment system. The Central Bank emphasized that anyone who used cryptocurrency did so at their own risk. 

El Salvador Legal

Main article: Bitcoin in El Salvador

Bitcoin was made legal tender in the country through the Bitcoin Law, which was passed on 8 June 2021, and took effect on 7 September 2021. 

One month on, more Salvadorans have bitcoin wallets than traditional bank accounts, and the most popular bitcoin wallet—the government's officially-sponsored Chivo wallet—had been downloaded by three million people, approaching 46 percent of the population. However, only 12 percent of Salvadoran consumers have used the cryptocurrency, and 93 percent of companies surveyed reported receiving no payments in bitcoin during the first month. 

Nicaragua Not regulated as of 2014

As of 2014, the government had not passed any regulation on Bitcoin, nor had the central bank issued rulings or guidelines. In January 2014, El Nuevo Diario reported that an American banker had used bitcoin to purchase real estate in the country. : Nicaragua 

Caribbean

Jamaica Legal

In 2017, The Bank of Jamaica (BoJ), issued a statement saying that it must create opportunities for the exploitation of cryptocurrency technology. The BoJ said it planned a campaign to build awareness of cryptocurrencies as part of increasing general financial literacy. : Jamaica 

Trinidad and Tobago Legal

In 2018, the Central Bank of Trinidad and Tobago issued a statement that it was willing to work with companies that provided Fintech and virtual currencies, while also cautioning that virtual currencies were risky, could be used to facilitate criminal activities, and lacked insurance and regulator recourse in case of problems. 

South America

Argentina Legal / Banking ban

Bitcoins may be considered money, but not legal currency. A bitcoin may be considered either a good or a thing under the Argentina's Civil Code, and transactions with bitcoins may be governed by the rules for the sale of goods under the Civil Code. : Argentina  On May 5, 2022, the Central Bank of Argentina banned financial institutions to facilitate any cryptocurrency-related transactions. 

Bolivia Illegal

Absolute ban. The Central Bank of Bolivia issued a resolution banning bitcoin and any other currency not regulated by a country or economic zone in 2014. 

Brazil Legal

In December 2022, Brazil established a licensing regime for virtual asset service providers with the aim of legalizing crypto as a payment method. Previously regulated, according to a 2014 statement by the Central Bank of Brazil concerning cryptocurrencies, but is discouraged because of operational risks. In November 2017 this unregulated and discouraged status was reiterated by the Central Bank of Brazil. On 7 May 2019, the Special Department of Federal Revenue of Brazil published a document on cryptocurrency taxes in the country. 

Chile Legal

There is no regulation on the use of bitcoins. : Chile 

Colombia Legal / Banking ban

Financial institutions are not allowed to facilitate bitcoin transactions. The Superintendencia Financiera warned financial institutions in 2014 that they may not "protect, invest, broker, or manage virtual money operations". 

Ecuador Legal to trade and hold / Illegal as a payment tool, banking ban

Usage of any cryptocurrency as a payment tool is banned, according to Article 98 of the Organic Code on Monetary and Financial Matters, with sanctions that includes the seizure of cryptocurrencies and any product acquired with them. As of December 25, 2021, no person has been criminally prosecuted for this reason. The Ecuadorian financial system strictly blocks any cryptocurrency-related transaction. Despite this, on January 8, 2018, according to a statement issued by the Central Bank of Ecuador, the purchase and sale of bitcoins is legal. 

Venezuela Legal

Bitcoin miners used to be arrested by law enforcement authorities, however in January 2018 Carlos Vargas, the government's cryptocurrency superintendent said "It is an activity that is now perfectly legal. We have had meetings with the Supreme Court so that people who have been victims of seizures and arrests in previous years will have charges dismissed." 

Asia

Central Asia

Afghanistan Illegal

In August 2022 Taliban banned trading in cryptocurrencies. 

Kyrgyzstan Legal

Bitcoin is considered a commodity, not a security or currency under the laws of the Kyrgyz Republic and may be legally mined, bought, sold and traded on a local commodity exchange. The use of bitcoin as a currency in domestic settlements is restricted. 

Uzbekistan Legal

On 2 September 2018, a decree legalizing crypto trading — also making it tax-free — and mining in the country came into force, making Uzbekistan a crypto-friendly state. 

West Asia

United Arab Emirates Legal / Banking ban

According to the Library of Congress "The Central Bank does not recognize cryptocurrencies as a form of payment yet. However, it is working on a new regulation for retail payment services that introduces the concept of tokens that could be used for payment purposes." 

On 13 February 2018 Dubai gold trader Regal RA DMCC became the first company in the Middle East to get a license to trade cryptocurrencies, the Dubai Multi Commodities Centre said. DMCC's website emphasizes the "cold storage" of cryptocurrencies and states "DMCC's Crypto-commodities license is for Proprietary Trading in Crypto-commodities only. No initial coin offerings are permitted and no establishment of an exchange is permitted under this license." 

In November 2020, the Securities and Commodities Authority published "The Chairman of the Authority's Board of Directors' Decision No. (23/Chairman) of 2020 Concerning Crypto Assets Activities Regulation." It establishes a regulatory framework for the offering, issuance, listing, and trading of crypto assets. Crypto assets providers must be incorporated onshore within the UAE. 

Israel Legal

As of 2017, the Israel Tax Authorities issued a statement saying that bitcoin and other cryptocurrencies would not fall under the legal definition of currency, and neither of that of a financial security, but of a taxable asset. Each time a bitcoin is sold, the seller would have to pay a capital gains tax of 25%. Miners, traders of bitcoins would be treated as businesses and would have to pay corporate income tax as well as charge a 17% VAT. 

Saudi Arabia Legal / Banking ban

Financial institutions are warned from using bitcoin. The Saudi Central Bank (SAMA) has warned from using bitcoin as it is high risk and its dealers will not be guaranteed any protection or rights. 

Jordan Legal / Banking ban

The government of Jordan has issued a warning discouraging the use of bitcoin and other similar systems. 

The Central Bank of Jordan prohibits banks, currency exchanges, financial companies, and payment service companies from dealing in bitcoins or other digital currencies. While it warned the public of risks of bitcoins, and that they are not legal tender, bitcoins are still accepted by small businesses and merchants. 

Lebanon Legal

The government of Lebanon has issued a warning discouraging the use of bitcoin and other similar systems. 

Turkey Legal / Banking ban

On 16 April 2021, Central Bank of the Republic of Turkey issued a regulation banning the use of cryptocurrencies including bitcoin and other such digital assets based on distributed ledger technology, directly or indirectly, to pay for goods and services, citing possible "irreparable" damage and transaction risks starting 30 April 2021. 

Qatar Legal / Banking ban

Banks are not allowed to trade in bitcoin due to concerns over financial crimes and hacking. Additionally cryptocurrency is banned in the Qatar Financial Centre. 

Iran Legal / Banking ban

Financial institutions are not allowed by central bank to facilitate bitcoin transactions. In April 2018, Central Bank of the Islamic Republic of Iran issued a statement banning the country's banks and financial institutions from dealing with cryptocurrencies, citing money laundering and terrorism financing risks. 

South Asia

Bangladesh Illegal

Financial institutions are not allowed to facilitate bitcoin transactions. In September 2014, Bangladesh Bank said that "anybody caught using the virtual currency could be jailed under the country's strict anti-money laundering laws". In 2021 the Bangladesh Bank said that cryptocurrency transactions or trade should be deemed as crimes if they involve money laundering or terror financing. 

India Legal

Finance minister Arun Jaitley, in his budget speech on 1 February 2018, stated that the government will do everything to discontinue the use of bitcoin and other virtual currencies in India for criminal uses. He reiterated that India does not recognise them as legal tender and will instead encourage blockchain technology in payment systems.

"The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system," Jaitley said. 

In early 2018 India's central bank, the Reserve Bank of India (RBI) announced a ban on the sale or purchase of cryptocurrency for entities regulated by RBI. 

In 2019, a petition has been filed by Internet and Mobile Association of India with the Supreme Court of India challenging the legality of cryptocurrencies and seeking a direction or order restraining their transaction. In March 2020, the Supreme Court of India passed the verdict, revoking the RBI ban on cryptocurrency trade. 

In 2021, the government is exploring the creation of a state-backed digital currency issued by the Reserve Bank of India, while banning private ones like bitcoin. 

At present, India neither prohibits nor allows investment in the cryptocurrency market. In 2020, the Supreme Court of India had specifically lifted the ban on cryptocurrency, which was imposed by the Reserve Bank of India. Since then the 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. 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". He mooted regulating the cryptocurrency market rather than completely banning it. He favoured following IMF and FATF guidelines in this regard.

Nepal Illegal

Absolute ban. The use of any cryptocurrency is illegal in Nepal. 

Pakistan Legal

Cryptocurrencies including bitcoin are not officially regulated in Pakistan; however, it is not illegal or banned. As of 16 January 2021, the State Bank of Pakistan has not authorized any individuals or organizations to carry out the sale, purchase, exchange, and investment of virtual currencies, coins, and tokens. There have been a number of arrests by the Cyber Crime Wing of the Federal Investigation Agency (FIA) related to the mining of bitcoin and other cryptocurrencies. These arrests were made under money-laundering charges. 

Despite the many controversies around virtual currencies, prominent Pakistani bloggers and social media influencers are publicly involved in trading bitcoin and regularly publish content on social media in the favor of regulating cryptocurrencies. In December 2020, the Khyber Pakhtunkhwa government became the first province in Pakistan to pass a resolution to legalize cryptocurrency in the country. 

East Asia

China (PRC) Illegal

Financial institutions are not allowed to facilitate bitcoin transactions. Regulation prohibits financial firms holding or trading cryptocurrencies. : China  On 5 December 2013, People's Bank of China (PBOC) made its first step in regulating bitcoin by prohibiting financial institutions from handling bitcoin transactions. 

On 1 April 2014 PBOC ordered commercial banks and payment companies to close bitcoin trading accounts in two weeks. 

Cryptocurrency exchanges or trading platforms were effectively banned by regulation in September 2017 with 173 platforms closed down by July 2018. 

In early 2018 the People's Bank of China announced the State Administration of Foreign Exchange led by Pan Gongsheng would crack down on bitcoin mining. Many bitcoin mining operations in China had stopped operating by January 2018. A complete ban on cryptocurrency trading and mining was put into effect on 24 September 2021. 

Hong Kong Legal

On 8 January 2014, the Secretary for Financial Services and the Treasury addressed bitcoin in the Legislative Council stating that "Hong Kong at present has no legislation directly regulating bitcoins and other virtual currencies of [a] similar kind. However, our existing laws (such as the Organised and Serious Crimes Ordinance) provide sanctions against unlawful acts involving bitcoins, such as fraud or money laundering." : Hong Kong 

On 16 November 2013, Norman Chan, the chief executive of Hong Kong Monetary Authority (HKMA) said that bitcoin is only a virtual commodity. He also decided that bitcoin will not be regulated by HKMA. However, the authority will be closely watching the usage of bitcoin locally and its development overseas. 

Japan Legal

On 7 March 2014, the Japanese government, in response to a series of questions asked in the National Diet, made a cabinet decision on the legal treatment of bitcoins in the form of answers to the questions. The decision did not see bitcoin as currency nor bond under the current Banking Act and Financial Instruments and Exchange Law, prohibiting banks and securities companies from dealing in bitcoins. The decision also acknowledges that there are no laws to unconditionally prohibit individuals or legal entities from receiving bitcoins in exchange for goods or services. Taxes may be applicable to bitcoins.

As of April 2017, cryptocurrency exchange businesses operating in Japan have been regulated by the Payment Services Act. Cryptocurrency exchange businesses have to be registered, keep records, take security measures, and take measures to protect customers. The law on cryptocurrency transactions must comply with the anti-money laundering law; and measures to protect users investors. The Payment Services Act defines "cryptocurrency" as a property value. The Act also states that cryptocurrency is limited to property values that are stored electronically on electronic devices, not a legal tender. 

South Korea Legal

Minors and all foreigners are prohibited from trading cryptocurrencies. Adult South Koreans may trade on registered exchanges using real name accounts at a bank where the exchange also has an account. Both the bank and the exchange are responsible for verifying the customer's identity and enforcing other anti-money-laundering provisions. 

Taiwan Legal / Banking ban

Financial institutions are not allowed to facilitate bitcoin transactions. Regulators have warned the public that bitcoin does not have legal protection, "as the currency is not issued by any monetary authority and is therefore not entitled to legal claims or guarantee of conversion". 

Financial institutions have been warned by regulators that necessary regulatory actions may be taken if they use bitcoin. : Taiwan 

On 31 December 2013, Financial Supervisory Commission (Republic of China) (FSC) and CBC issued a joint statement which warns against the use of bitcoin. It is stated that bitcoin remains highly volatile, highly speculative, and is not entitled to legal claims or guarantee of conversion. 

On 5 January 2014, FSC chairman Tseng Ming-chung stated that FSC will not allow the installation of bitcoin ATM in Taiwan because bitcoin is not a currency and it should not be accepted by individuals and banks as payment. 

Southeast Asia

Cambodia Legal / Banking ban

The National Bank of Cambodia (NBC), has "asked banks in Cambodia not to allow people to conduct transactions with cryptocurrencies." 

Indonesia Legal to trade and hold / Illegal as payment tool

On 7 December 2017, Bank Indonesia, the country's central bank, issued a regulation banning the use of cryptocurrencies including bitcoin as payment tools starting 1 January 2018. On 11 November 2021, Indonesian Ulema Council issued haram fatwa against use of cryptocurrencies as currency including Bitcoin, citing both Islamic laws and Indonesian banking and monetary regulations. The fatwa also forbids cryptocurrency trading and holding, except if those cryptocurrencies met the Islamic sil'ah standards of trade-able and own-able goods such as having physical form, having clear value, having known number, can be really owned, transferable, and not entirely speculative. By passing of the Law on Financial Sector Development and Strengthening on 15 December 2022, all cryptocurrencies including the Bitcoin listed as "monitored financial technologies" that all related affairs related to the innovation, utilization, and other activities related to it will become the subject of Bank Indonesia and Financial Services Authority control and monitoring. 

Malaysia Legal

On 4 November 2013, Bank Negara Malaysia (BNM) met with local bitcoin proponents to learn more about the currency but did not comment at the time. BNM issued a statement on 6 January 2014 that bitcoin is not recognised as a legal tender in Malaysia. The central bank will not regulate bitcoin operations at the moment and users should aware of the risks associated with bitcoin usage. : Malaysia 

Philippines Legal

On 6 March 2014, Bangko Sentral ng Pilipinas (BSP) issued a statement on risks associated with bitcoin trading and usage. Recently virtual currencies were legalized and cryptocurrency exchanges are now regulated by Central Bank of the Philippines (Bangko Sentral ng Pilipinas) under Circular 944; however bitcoin and other "virtual currencies" are not recognized by the BSP as currency as "it is neither issued or guaranteed by a central bank nor backed by any commodity." 

Singapore Legal

In December 2013, the Monetary Authority of Singapore reportedly stated that "[w]hether or not businesses accept bitcoins in exchange for their goods and services is a commercial decision in which MAS does not intervene." : Singapore 

On 22 September 2013, the Monetary Authority of Singapore (MAS) warned users of the risks associated with using bitcoin stating "If bitcoin ceases to operate, there may not be an identifiable party responsible for refunding their monies or for them to seek recourse" and in December 2013 stated "Whether or not businesses accept bitcoins in exchange for their goods and services is a commercial decision in which MAS does not intervene" In January 2014, the Inland Revenue Authority of Singapore issued a series of tax guidelines according to which bitcoin transactions may be treated as a barter exchange if it is used as a payment method for real goods and services. Businesses that deal with bitcoin currency exchanges will be taxed based on their bitcoin sales. 

In April 2019, the MAS referred to bitcoin as a digital payment token for purposes of the Payment Services Act. 

Thailand Legal to trade and hold / Illegal as payment tool

Thai based bitcoin exchanges can only exchange Digital Currencies for Thai Baht and are required to operate with a Thailand Business Development Department e-commerce license. They are also required to have KYC and CDD policies and procedures in place, in accordance with the Ministerial Regulation Prescribing Rules and Procedures for Customer Due Diligence, Reference Page 8 Volume 129 Part 44 A Government Gazette 23 May 2555 (2012). 

Suspicious activity must be reported to the Anti-Money Laundering Office. 

As of 1 April 2022, the Thai government no longer allows cryptocurrencies to be used as payment for goods or services. The regulation doesn't prohibit owning or trading cryptocurrencies, although commercial banks have been cautioned against direct involvement in digital assets. 

Vietnam Legal to trade and hold / Illegal as payment tool

The State Bank of Vietnam has declared that the issuance, supply and use of bitcoin and other similar virtual currency is illegal as a mean of payment and subject to punishment ranging from 150 million to 200 million VND, but the government does not ban bitcoin trading as a virtual goods or assets. 

Brunei Legal to trade and hold

Bitcoin and cryptocurrency is not legal tender in Brunei Darussalam and are not regulated by AMBD (Brunei Monetary Authority). It is not protected under the laws administered by AMBD. 

AMBD however, advised the public not to be easily enticed by any investment or financial activity advertisements, and to conduct due diligence and understand the financial products properly before participating. There is no law that stated that holding or trading bitcoin is illegal. 

Europe

Central Europe

Austria Legal

Not considered to be an official form of currency, earnings are subject to tax law.

The Financial Market Authority (FMA) has warned investors that cryptocurrencies are risky and that the FMA does not supervise or regulate virtual currencies, including bitcoin, or cryptocurrency trading platforms. : 30–31 

Croatia Legal

Croatia's Financial Stability Council warned investors about the risks of virtual currencies, such as digital wallet theft and fraud, on 18 December 2017. The National Bank of Croatia issued a similar warning on 22 September 2017. : 33 

Czech Republic Legal

Businesses and individuals who buy, sell, store, manage, or mediate the purchase or sale of virtual currencies or provide similar services must comply with the anti-money laundering law. : 33–34 

Bitcoin is classified as an intangible asset (not as electronic money) for the purpose of accounting and taxes. 

Germany Legal

On 19 August 2013, the German Finance Ministry announced that bitcoin is now essentially a "unit of account" and can be used for the purpose of tax and trading in the country, meaning that purchases made with it must pay VAT as with euro transactions. It is not classified as a foreign currency or e–money but stands as "private money" which can be used in "multilateral clearing circles", according to the ministry. The Bundesbank says that bitcoin is not a virtual currency or digital money. It recommends using the term "crypto token." : 41 

In November 2019, a legislation passed by German parliament allows the banks to sell and store cryptocurrencies starting from 1 January 2020. 

Hungary Legal

The Hungarian Central Bank, Magyar Nemzeti Bank (MNB) has issued several warnings over cryptocurrencies, stating that it is "much riskier" than other electronic payments such as credit cards. 

Gibraltar Legal

Back in 2018, Gibraltar became the first country in the world to provide a tailored regulatory framework for businesses that use distributed ledger technology. The travel rule was implemented through the Proceeds of Crime Act 2015 (Transfer of Virtual Assets) Regulations 2021 and has been in force since March 22, 2021. 

Poland Legal

The use of bitcoin in Poland is not regulated by a legal act at present. : Poland 

Szymon Woźniak of the Ministry of Finance made an official announcement on the legality of bitcoin on 18 December 2013 at a conference at the Warsaw School of Economics stating that the Ministry of Finance does not consider bitcoin illegal and does not want to hinder its development. He clarified that while not illegal, bitcoin cannot be considered legal tender, and, in the light of the directives of the European Union, it is neither electronic money. As of 27 January 2015, several banks have closed accounts of clients trading bitcoin, and indicated "presumption of criminal offense" as the cause, with "criminal offense" presumably being "cryptocurrency trade". As of 7 July 2017, the National Bank of Poland (NBP) and Financial Supervision Authority (KNF) issued a comment on virtual "currencies". They underlined that virtual currencies (including bitcoin): (1) are not issued or guaranteed by the central bank, (2) are not money, i.e. they are neither legal tender nor currency, (3) can not be used to pay tax liabilities, (4) do not meet the criterion of universal acceptability in shopping and service points, (5) are not electronic money, (6) are not payment services (in legal terms), (7) are not financial instruments (in legal terms). They added that trading virtual currencies in Poland does not violate national or EU law, however, having virtual "currencies", involves many risks: (1) risk related to the possibility of loss of funds due to theft, (2) risk related to lack of guarantee, (3) risk of lack of universal acceptability, (4) risk related to the possibility of fraud, (5) risk of high price change. Because of these risks, the NBP and KNF warn against buying virtual currencies and investing in them. The NBP and KNF recognize that the purchase, possession and sale of virtual currencies by entities supervised by the KNF (e.g. banks) would be burdened with high risk and would not ensure a stable and prudent management of the financial institution. Financial institutions should be cautious about engaging and cooperating with virtual currency "trading" entities.

Romania Legal

As of March 2015, an official statement of the Romanian National Bank mentioned that "using digital currencies as payment has certain risks for the financial system". 

In October 2017, the National Fiscal Administration Agency (ANAF) declared that there is a lack of a legislative framework around bitcoin, and therefore, it is unable to create a tax regulation framework for it as well (implying no taxation). 

In January 2019, Law nr. 30/2019 clarifies that starting in 2019, income from trading "virtual currency" is classified under "income from other sources". In addition, there is a new subpoint, Article 116. (2) c), specifying that the income tax of 10% is only applied on the "positive difference between the selling price and acquisition price" (and not to the entire received amount from a sale). In addition, profits under 200 RON per transaction that total under 600 RON during a fiscal year are exempt from tax. 

Slovakia Legal

The National Bank of Slovakia (NBS), stated that bitcoin does not have the legal attributes of a currency, and therefore it cannot be considered a currency. European legislation, including the Slovak law, does not define the activities associated with virtual currency. Such activities are not regulated and supervised by the National Bank of Slovakia or the European Central Bank. At the same time NBS points out that any legal person or natural person in the Slovak Republic shall not issue any notes or any other coins. Unlawful manufacturing of banknotes and coins and putting them into circulation is punishable by law. In this context, NBS points out that virtual currencies have not a physical counterpart in the form of legal tender and participation in such a scheme (virtual currency) is at your own risk. Exchanges or purchases of virtual currencies represent the business risk of investors and investors' money are not protected. For any compensation of losses caused by such exchanges or purchases there is no legal entitlement.

Slovenia Legal

On 23 December 2013 the Slovenian Ministry of Finance made an announcement stating that bitcoin is neither a currency nor an asset. There is no capital gains tax chargeable on bitcoin, however bitcoin mining is taxed and businesses selling goods/services in bitcoin are also taxed.

Switzerland Legal

Bitcoin businesses in Switzerland are subject to anti-money laundering regulations and in some instances may need to obtain a banking license. 

On 5 December 2013, a proposal was put forth by 45 members of the Swiss Parliament for digital sustainability (Pardigli), that calls on the Swiss government to evaluate the opportunities for utilization of bitcoin by the country's financial sector. It also seeks clarification on bitcoin's legal standing with respect to VAT, securities and anti-money laundering laws. 

In response to the parliament postulates, the Swiss Federal Council issued a report on virtual currencies in June 2014. The report states that since virtual currencies are not in a legal vacuum, the Federal Council has concluded that there is no need for legislative measures to be taken at the moment.

In 2016, Zug added bitcoin as a means of paying city fees, in a test and an attempt to advance Zug as a region that is advancing future technologies. Swiss Federal Railways, government-owned railway company of Switzerland, sells bitcoins at its ticket machines. 

In 2018, FINMA stated that it would take a "balanced approach" towards the cryptocurrency industry and allow "legitimate innovators to navigate the regulatory landscape". By June 2021, a record number of 100 Exchange Traded Products (ETP) and crypto structured products were offered on the SIX Swiss Exchange with a total trading value of CHF 4.6 billion. 

Eastern Europe

Albania Legal

On 21 May 2020, Albania passed a new law to regulate cryptocurrency activities. 

Belarus Legal

The Decree On the Development of Digital Economy — the decree of Alexander Lukashenko, the President of the Republic of Belarus, which includes measures to liberalize the conditions for conducting business in the sphere of high technologies.

The provisions of the decree "On the Development of Digital Economy" create of a legal basis for the circulation of digital currencies and tokens based on blockchain technology, so that resident companies of the High-Tech Park can provide the services of stock markets and exchange offices with cryptocurrencies and attract financing through the ICO. For legal entities, the Decree confers the rights to create and place their own tokens, carry out transactions through stock markets and exchange operators; to individuals the Decree gives the right to engage in mining, to own tokens, to acquire and change them for Belarusian rubels, foreign currency and electronic money, and to bequeath them. Up to 1 Jan In 2023, the Decree excludes revenue and profits from operations with tokens from the taxable base. In relation to individuals, the acquisition and sale of tokens is not considered entrepreneurial activity, and the tokens themselves and income from transactions with them are not subject to declaration. The peculiarity of the introduced regulation is that all operations will have to be carried out through the resident companies of the High-Tech Park.

In addition, the decree includes:

Extension of the validity period of the special legal regime of the High-Tech Park until 1 January 2049, and expansion of the list of activities of resident companies. Under the new rules, developers of blockchain-based solutions, developers of machine learning systems based on artificial neural networks, companies from the medical and biotechnological industries, developers of unmanned vehicles, as well as software developers and publishers can become residents. The list of promising areas is unlimited and can be expanded by the decision of the High-Tech Park supervisory board.

Preservation of existing benefits for resident companies in the High-Tech Park, including the cancellation of the profit tax (instead of which a contribution of 1% of the gross revenues proceeding to the administration of the park is applied), reduced to 9% of the personal income tax rate for employees, and the right to contribute to the Social Protection Fund according to the national average figures, and not the actual salaries.

Exemption of foreign companies providing marketing, advertising, consulting and other services to the residents of the High-Tech Park from paying value-added tax, as well as paying income tax, which allows to promote IT products of Belarusian companies in foreign markets. To encourage investments, the Decree also exempts foreign companies from the tax on income from the alienation of shares, stakes in the authorized capital and shares in the property of residents of the High-Tech Park (under condition of continuous possession of at least 365 days).

Introduction of individual English law institutions for residents of the High-Tech Park, which will make it possible to conclude option contracts, convertible loan agreements, non-competition agreements with employees, agreements with responsibility for enticing employees, irrevocable powers of attorney and other documents common in international practice. This measure is aimed at simplifying the structuring of transactions with foreign capital.

Simplification of the regime of currency transactions for residents of the High-Tech Park, including the introduction of a notification procedure for currency transactions, the cancellation of the mandatory written form of foreign trade transactions, the introduction of confirmation of the conducted operations by primary documents drawn up unilaterally. Also, the decree removes restrictions on resident companies for transactions with electronic money and allows opening accounts in foreign banks and credit and financial organizations without obtaining permission from the National Bank of the Republic of Belarus.

Simplification of the procedure for recruiting qualified foreign specialists by resident companies of the High-Tech Park, including the abolition of the recruitment permit, the simplified procedure for obtaining a work permit, and the visa-free regime for the founders and employees of resident companies with a term of continuous stay of up to 180 days. 

Georgia Legal

Based on the public decision issued by the Ministry of Finance of Georgia in 2019, crypto, by its very nature, is not "sourced" in any specific geographical location, meaning that it is not considered "Georgian sourced". This type of income would come under the 0% tax on capital gains derived from crypto trading laws.

Owning and trading crypto in Georgia is legal. Due to a lack of government regulation and cheap and available hydroelectric power Georgia is a center for crypto mining.

Crypto is not legal tender in Georgia, but there is currently no regulation by The National Bank of Georgia preventing it from being used in the form of a barter exchange. 

Kosovo Ban on mining 

In January 2022, coinciding with an energy crisis, Kosovo outlawed all cryptocurrency mining. According to BBC News, cryptocurrency mining "is particularly popular in northern areas of Kosovo, where ethnic Serbs do not recognise the state's independence and refuse to pay electricity bills". 

Russia Legal to mine Banking ban

On December 11, 2020, Vladimir Putin ordered public officials to declare any cryptocurrency holdings and digital assets starting from January 1, 2021. 

As of 2021, Putin said Russia accepts the role of cryptocurrencies, and that cryptocurrencies can be used for payment. 

As of November 2016, bitcoins were "not illegal" according to the Federal Tax Service of Russia. Deputy Finance Minister of the Russian Federation Alexei Moiseev said in September 2017 it's "probably illegal" to accept cryptocurrency payments. However, bitcoin market sites are blocked, and court decisions state that bitcoin is a currency surrogate which is outlawed in the territory of the Russian Federation. 

From the point of view of the current Russian legislation, cryptocurrency is a monetary substitute. According to article 27 of the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)", the issue of monetary surrogates in the Russian Federation is prohibited. 

The Central Bank of Russia and Rosfinmonitoring in their informational appeals have repeatedly warned Russian citizens that all operations with cryptocurrency are speculative and carry a high risk of loss of value. The Central Bank of Russia states that: "Most operations with cryptocurrencies are performed outside the legal regulation of both the Russian Federation and most other states. Cryptocurrencies are not guaranteed or provided by the Bank of Russia." 

A bill on digital financial assets was introduced in the State Duma on 20 March 2018. It defines cryptocurrency mining as "activities aimed at the creation of cryptocurrency with the purpose of receiving compensation in the form of cryptocurrency." and treats it as an "entrepreneurial activity subject to taxation if the miner exceeds the energy consumption limits established by the government for three months in a row."

In the bill, bitcoins are classified as property and are not considered legal tender. The exchange of cryptocurrency for roubles and foreign currency is allowed but only through licensed operators. The bill also provides a definition of a smart contract. 

In January 2022, the Central Bank of Russia proposed to ban "all cryptocurrency issuance and operations, stop banks from investing in cryptocurrencies, block exchanging crypto for traditional currency, and introduce legal liability for using crypto in purchases" citing systemic financial risk. According to Bloomberg News and Meduza, the Federal Security Service convinced the Central Bank to ban cryptocurrencies in Russia, as they are used to finance the opposition and independent media. In February 2022, the Russian government eventually announced it would support, legalize, and regulate cryptocurrencies, and not ban them. 

Ukraine Legal / Illegal to buy with local currency

On 16 March 2022 president of Ukraine signed Virtual Assset Bill into law. On 22 April, Central Bank banned purchasing cryptocurrencies with local currency and made the monthly limit of $3300 for purchases with foreign currencies. 

Northern Europe

Denmark Legal

Denmark's Financial Supervisory Authority issued a statement declaring that bitcoin is not a currency and stating that it will not regulate its use. : Denmark 

On 17 December 2013, Denmark's Financial Supervisory Authority (FSA) has issued a statement that echoes EBA's warning. As of 2017, FSA says that doing business with bitcoin does not fall under its regulatory authority and therefore FSA does not prevent anyone from opening such businesses. FSA's chief legal adviser says that Denmark might consider amending existing financial legislation to cover virtual currencies. 

Estonia Legal

In Estonia, the use of bitcoins is not regulated or otherwise controlled by the government. : Estonia 

The Estonian Ministry of Finance have concluded that there is no legal obstacles to use bitcoin-like crypto currencies as payment method. Traders must therefore identify the buyer when establishing a business relationship or if the buyer acquires more than 1,000 euros of the currency in a month. 

Finland Legal

The Finnish Tax Administration has issued instructions for the taxation of virtual currencies, including the bitcoin. : Finland  Rather than a currency or a security, a bitcoin transaction is considered a private contract equivalent to a contract for difference for tax purposes. Purchases of goods with bitcoin or conversion of bitcoin into legal currency "realizes" the value and any increase in price will be taxable; however, losses are not tax-deductible. Mined bitcoin is considered earned income. 

Ruling 034/2014 by the Finnish Central Board of Taxes (CBT) stated that commission fees charged on bitcoin purchases by an exchange market were, under the EU VAT Directive, banking services and therefore VAT exempt. This is because the court classified bitcoins as payment instruments - whereas most countries treat their use as an unregulated method for the exchange of goods, or even as a crime. 

Iceland Legal

According to a 2014 opinion, from the Central Bank of Iceland "there is no authorization to purchase foreign currency from financial institutions in Iceland or to transfer foreign currency across borders on the basis of transactions with virtual currency. For this reason alone, transactions with virtual currency are subject to restrictions in Iceland." This does not stop businesses in Iceland from mining bitcoins. The Icelandic Central Bank confirmed that "it is prohibited to engage in foreign exchange trading with the electronic currency bitcoin, according to the Icelandic Foreign Exchange Act". 

On 12 March 2017, the Central Bank amended its rules. With the new rules, wide and general exemptions have been granted from the restrictions of the Foreign Exchange Act No. 87/1992. 

Lithuania Legal

Bank of Lithuania released a warning on 31 January 2014, that bitcoin is not recognized as legal tender in Lithuania and that bitcoin users should be aware of the high risks that come with the usage of it. 

Norway Legal

The Norwegian Tax Administration stated in December 2013 that they do not define bitcoin as money but regard it as an asset. Profits are subjected to wealth tax. In business, use of bitcoin falls under the sales tax regulation. 

The Norwegian government stated in February 2017 that they would not levy VAT on the purchase or sale of bitcoin. 

Sweden Legal

The Swedish Tax Agency has given a preliminary ruling on Value Added Tax (VAT) on bitcoins, stating that trade in bitcoins is not subject to Swedish VAT, but is instead subject to the Finansinspektionen (Financial Supervisory Authority) regulations and treated as a currency. The decision has been appealed by the Swedish Tax Authority. : Sweden 

The Swedish jurisdiction is in general quite favorable for bitcoin businesses and users as compared to other countries within the EU and the rest of the world. The governmental regulatory and supervisory body Swedish Financial Supervisory Authority (Finansinspektionen) have legitimized the fast growing industry by publicly proclaiming bitcoin and other digital currencies as a means of payment. For certain businesses interacting with fiat (mainly exchanges) the current regulation dictates that an application for approval/license must be filed and all the AML/CTF and KYC regulations applicable to more traditional financial service providers must be followed.

Southern Europe

Bosnia and Herzegovina Legal

No regulation on the use of bitcoins.

Bulgaria Legal

There is not a single word in Bulgarian laws about bitcoin. People owe 10% tax if they made a profit trading.

Cyprus Legal

The use of bitcoin is not regulated in Cyprus. : Cyprus 

Greece Legal

No specific legislation on bitcoins exists in Greece. : Greece 

Italy Legal

Italy does not regulate bitcoin use by private individuals. : Italy 

Malta Legal

As of 2017, Malta does not have any regulations specifically pertaining to bitcoins. : Malta  In 2017, the country's prime minister Joseph Muscat announced the approval of a national strategy to promote bitcoin and blockchain technology. Muscat specifically addressed the bitcoin blockchain's ability to handle, store and process sensitive data in an immutable and decentralized ecosystem. 

North Macedonia Legal

No specific legislation on bitcoins or cryptocurrency exists in North Macedonia.

In 2016, the National Bank of the Republic of North Macedonia published a press release regarding an investigation it made into ONECOIN, and discouraged the citizens from investing in it since it was most likely a scam. In the same press release, the NBRM quoted the law on Foreign Exchange Operations, but since cryptocurrencies do not constitute a foreign currency as they are quoted by the law, it leaves them unregulated. 

Portugal Legal

In 2013, the Bank of Portugal stated that Bitcoin was not a safe currency, as their issuance lacked oversight or prudential requirements. As of 2014, Portugal had no specific legal framework for Bitcoin. : Portugal 

Spain Legal

Transactions in bitcoins are subject to the same laws as barter transactions. : Spain 

Western Europe

Belgium Legal

In July 2013, the Minister of Finance expressed concerns over the use of Bitcoin for money laundering, but indicated that government intervention did not yet appear necessary. : Belgium 

France Legal

The French Ministry of Finance issued regulations on 11 July 2014 pertaining to the operation of virtual currency professionals, exchanges, and taxation. 

Ireland Not regulated by central bank

The Central Bank of Ireland was quoted in Dáil Éireann in December 2013 as stating that it does not regulate bitcoin, and that bitcoin is not legal tender in the European Union. : Ireland 

Luxembourg Legal

The Commission de Surveillance du Secteur Financier has issued a communication in February 2014 acknowledging the status of currency to the bitcoin and other cryptocurrencies. The first BitLicence was issued in October 2015. 

Netherlands Legal

As of 2013, "alternative virtual currencies" such as bitcoin are not classified as money and do not fall within the scope of the Act on Financial Supervision of the Netherlands. : Netherlands  When dealing with cryptocurrencies one must declare them and pay taxes to the Dutch Tax and Customs Administration. 

United Kingdom Legal

As of 2013, the government of the United Kingdom has stated that bitcoin is unregulated and that it is treated as a 'foreign currency' for most purposes, including VAT/GST. : United Kingdom 

Bitcoin is treated as 'private money'. When bitcoin is exchanged for sterling or for foreign currencies, such as euro or dollar, no VAT will be due on the value of the bitcoins themselves. However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrency. Profits and losses on cryptocurrencies are subject to capital gains tax. 

In March 2022, the Financial Conduct Authority (FCA) declared that all cryptocurrency ATMs in the country were illegal, as none of the ATM's operators had successfully registered with the agency. The FCA cited a failure to comply with know your customer laws, as well as the high risk to customers, due to a lack of regulation and protection. 

Oceania

Australasia

Australia Legal

In December 2013, the governor of the Reserve Bank of Australia (RBA) indicated in an interview about bitcoin legality stating, "There would be nothing to stop people in this country deciding to transact in some other currency in a shop if they wanted to. There's no law against that, so we do have competing currencies." Beginning in April 2018, Australian digital currency exchanges must register with the Australian Transaction Reports and Analysis Centre and implement "know your customer" policies to comply with new anti-money laundering legislation. 

New Zealand Legal

The Reserve Bank of New Zealand states: "Non-banks do not need our approval for schemes that involve the storage and/or transfer of value (such as 'bitcoin') – so long as they do not involve the issuance of physical circulating currency (notes and coins)." : New Zealand 

Melanesia

Fiji Yes Legal

Prime Minister Sitiveni Rabuka is a proponent of cryptocurrencies and has even planned to make bitcoin legal tender as soon as 2023. 

Tuvalu Yes Legal

The government officially supports the use of blockchain technologies, including cryptocurrencies. 

Vanuatu Yes Legal

Legalised in 2021. 

Micronesia

Marshall Islands Yes Legal

Decentralised autonomous organisations (DAOs), which are blockchain-based, are considered legal entities in the Marshall Islands.

Palau Yes Legal

The use of cryptocurrencies is officially supported by the government. 

Polynesia

Samoa Yes Legal

The use of cryptocurrencies in Samoa is legal but discouraged by the Central Bank of Samoa. 

Tonga Yes Legal

Tonga plans to make bitcoin legal tender by the end of 2023. This has been planned since late 2021. 

Cryptocurrency and crime describes notable examples of cybercrime related to theft (or the otherwise illegal acquisition) of cryptocurrencies and some of the methods or security vulnerabilities commonly exploited. Cryptojacking is a form of cybercrime specific to cryptocurrencies that has been used on websites to hijack a victim's resources and use them for hashing and mining cryptocurrencies. 

According to blockchain analysis company Chainalysis, .15% of known cryptocurrency transactions conducted in 2021 were involved in illicit activities like cybercrime, money laundering and terrorism financing, representing a total of $14 billion. 

Background

There are various types of cryptocurrency wallets available, with different layers of security, including devices, software for different operating systems or browsers, and offline wallets.

Novel exploits unique to blockchain transactions exist which aim to create unintended outcomes for those on the other end of a transaction. One of the more well known issues that opens the possibility for exploits on Bitcoin is the transaction malleability problem. 

The Immunefi Crypto Losses 2022 Report lists industry losses from frauds and hacking as a combined total of US$3.9 billion for the year, and at US$8 billion for 2021. 

Notable thefts

In 2018, around US$1.7 billion in cryptocurrency was lost to scams, theft and fraud. In the first quarter of 2019, the amount of such losses rose to US$1.2 billion.  2022 was a record year for cryptocurrency theft, according to Chainalysis, with US$3.8 billion  stolen worldwide during 125 system hacks,  including US$1.7 billion stolen by "North Korea-linked hackers". 

Exchanges

Notable cryptocurrency exchange compromises resulting in the loss of cryptocurrencies include:

Between 2011 and 2014, US$350 million worth of bitcoin were stolen from Mt. Gox. 

In 2016, US$72 million were stolen through exploiting Bitfinex's exchange wallet, users were refunded. 

On December 7, 2017, Slovenian cryptocurrency exchange NiceHash reported that hackers had stolen over $70 million using a hijacked company computer.  

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

In 2018, cryptocurrencies worth US$400 million were stolen from Coincheck. 

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

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

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

Zaif US$60 million in Bitcoin, Bitcoin Cash and Monacoin stolen in September 2018 

Binance In 2019 cryptocurrencies worth US$40 million were stolen.  

Africrypt founders are suspected of absconding in June 2021 with US$3.6 billion worth of Bitcoin 

PolyNetwork (DeFi) suffered the loss of US$611 million in a theft in August 2021. 

Japanese cryptocurrency exchange Liquid was compromised in August 2021 resulting in a loss of US$97 million worth of digital coins 

Cream Finance was subject to a US$29 million theft in August, 2021  and $130 million October 28, 2021. 

On December 2, 2021, users of the BadgerDAO DeFi lost around $118,500,000 worth of bitcoin and $679,000 worth of ethereum tokens in a front-end attack. A compromised API key of the Cloudflare content delivery network account allowed injecting of a malicious script to the web interface. BadgerDAO "paused" all smart contracts due to user complaints. 

On December 6, 2021, the cryptocurrency exchange BitMart lost around $135M worth of Ethereum and an estimate of around $46 million in other cryptocurrencies due to a breach of two of its wallets.  Although BitMart stated that it would reimburse its clients, many BitMart clients have not received any money from the exchange as of January 2022. 

On December 12, 2021, users of VulcanForge lost around $135M worth of PYR due to breaches of multiple wallets. Partnering centralized exchanges had been notified of the hack and they have pledged to seize any stolen funds upon deposit. 

On January 27, 2022, Qubit Finance (DeFi) lost around $80M worth of Binance Coin due to a flaw in the smart contract that enabled withdrawal of the said amount in exchange for a deposit of 0 ETH. 

In March 2022,  the largest cryptocurrency theft of the year, US$625 million in ether and USD coin was stolen from the Ronin Network. Hacked nodes were finally discovered when a user reported being unable to withdraw funds. The heist was later linked to Lazarus Group, a North Korean state-backed hacking collective, by the U.S. Treasury Department. 

On September 20, 2022, Wintermute was hacked resulting in theft of US$160 million. The company attributed the vulnerability to a service used by the platform that generates vanity addresses for digital accounts. 

Wallets

The Parity Wallet has had two security incidents amounting to 666,773 ETH lost or stolen.  In July 2017, due to a bug in the multisignature code, 153,037 ETH (approximately US$32 million at the time) were stolen.   In November 2017, a subsequent multisignature  flaw in Parity led to a lock-up of 513,774 Ether (about US$150 million at the time) to be unreachable;   as of March 2019, the funds were still frozen. 

Energy

Notable cases of electricity theft to mine proof-of-work cryptocurrencies include:

In February 2021 Malaysian police arrested six men involved in a Bitcoin mining operation which had stolen US$2 million in electricity 

Ukraine authorities shut down an underground gaming and cryptocurrency farm in July, 2021, accused of stealing $259,300 of electricity each month 

In July 2021 Malaysian authorities destroyed 1,069 cryptocurrency mining systems accused of stealing electricity from the grid 

In May, 2021 UK authorities closed a suspected bitcoin mine after Western Power Distribution found an illegal connection to the electricity supply 

Blockchains

Bitcoin

There have been many cases of bitcoin theft.  As of December 2017, around 980,000 bitcoins—over five percent of all bitcoin in circulation[a]—had been lost on cryptocurrency exchanges. 

One type of theft involves a third party accessing the private key to a victim's bitcoin address,  or of an online wallet.  If the private key is stolen, all the bitcoins from the compromised address can be transferred. In that case, the network does not have any provisions to identify the thief, block further transactions of those stolen bitcoins, or return them to the legitimate owner. 

Theft also occurs at sites where bitcoins are used to purchase illicit goods. In late November 2013, an estimated US$100 million in bitcoins were allegedly stolen from the online illicit goods marketplace Sheep Marketplace, which immediately closed.  Users tracked the coins as they were processed and converted to cash, but no funds were recovered and no culprits were identified.  A different black market, Silk Road 2, stated that during a February 2014 hack, bitcoins valued at $2.7 million were taken from escrow accounts. 

Sites where users exchange bitcoins for cash or store them in "wallets" are also targets for theft. Inputs.io, an Australian wallet service, was hacked twice in October 2013 and lost more than $1 million in bitcoins.  GBL, a Chinese bitcoin trading platform, suddenly shut down on 26 October 2013; subscribers, unable to log in, lost up to $5 million worth of bitcoin.  In late February 2014 Mt. Gox, one of the largest virtual currency exchanges, filed for bankruptcy in Tokyo amid reports that bitcoins worth US$350 million had been stolen.  Flexcoin, a bitcoin storage specialist based in Alberta, Canada, shut down in March 2014 after saying it discovered a theft of about $650,000 in bitcoins.  Poloniex, a digital currency exchange, reported in March 2014 that it lost bitcoins valued at around $50,000.  In January 2015 UK-based bitstamp, the third busiest bitcoin exchange globally was hacked and US$5 million in bitcoins were stolen.  February 2015 saw a Chinese exchange named BTER lose bitcoins worth nearly $2 million to hackers. 

A major bitcoin exchange, Bitfinex, was compromised by the 2016 Bitfinex hack, when nearly 120,000 bitcoins (around US$71 million) was stolen in 2016.  Bitfinex was forced to suspend its trading. The theft was the second-largest bitcoin heist ever, dwarfed only by the Mt. Gox theft in 2014. According to Forbes, "All of Bitfinex's customers... will stand to lose money. The company has announced a cut of 36.067% across the board."  Following the hack the company refunded customers.  In 2022, the US government recovered 94,636 bitcoin (worth approximately $3.6 billion at the time of recovery) from the 2016 thefts of the Bitfinex exchange, reported as the "largest financial seizure" in U.S. history.  By February 2022, the amount of bitcoin stolen in 2016 had increased in value to $4.5 billion. Two people were arrested for the thefts  in 2022; married couple Ilya “Dutch” Lichtenstein and rapper Heather "Razzlekhan" Morgan were charged with conspiracy to commit money laundering and conspiracy to defraud the United States. 

On May 7, 2019, hackers stole over 7000 Bitcoins from the Binance Cryptocurrency Exchange, at a value of over 40 million US dollars. Binance CEO Zhao Changpeng stated: "The hackers used a variety of techniques, including phishing, viruses, and other attacks... The hackers had the patience to wait, and execute well-orchestrated actions through multiple seemingly independent accounts at the most opportune time." 

Thefts have raised safety concerns. Charles Hayter, founder of the digital currency comparison website CryptoCompare said, "It's a reminder of the fragility of the infrastructure in such a nascent industry."  According to the hearing of U.S. House of Representatives Committee on Small Business on April 2, 2014, "these vendors lack regulatory oversight, minimum capital standards and don't provide consumer protection against loss or theft." 

Ethereum

See also: Ethereum § Launch and the DAO event (2014–2016)

In June 2016, hackers exploited a vulnerability in The DAO to steal US$50 million. Subsequently, the currency was forked into Ethereum Classic, and Ethereum, with the latter continuing with the new blockchain without the exploited translations.  

On November 21, 2017, Tether announced that it had been hacked, losing $31 million in USDT from its core treasury wallet.  The company has 'tagged' the stolen currency, hoping to 'lock' them in the hacker's wallet (making them unspendable). 

In 2022, hackers created a signature account on a blockchain bridge called "Wormhole" and stole more than $300 million worth of ether. 

Fraud

Exit scams and ponzi schemes through initial coin offerings (ICOs)

Most exit scams (or rugpulls) as well as many ponzi schemes involving cryptocurrencies are performed through Initial Coin Offerings (ICOs).  As an example, according to a report by Satis Group almost 80% of all projects launched through an ICO in 2017 were scams.  These scams usually involve attracting investments from mostly retail investors, inflating the price and the perpetrators subsequently abandoning the project in question after selling off their own shares. 

The novelty of ICOs accounts for the current lack of governmental regulation.  This lack of regulatory measures as well as the pseudonymity of cryptocurrency transactions and their international nature across countless jurisdictions in many different countries can make it much more difficult to identify and take legal action against perpetrators involved in these scams.   Since 2017 the SEC has been actively pursuing groups and individuals responsible for ICO-related scams. 

Examples of ICO-related scams

AriseCoin (AriseBank): AriseBank marketed itself as the world's first decentralized bank, falsely claiming to be able to offer FDIC-insured accounts, VISA-cards as well as services related to cryptocurrency and making other false statements.  AriseBank promoted its AriseCoin through celebrity endorsement and social media in order to raise the US$1 billion the company was aiming for.  Their ICO was halted by the SEC in early 2018 with their CEO and COO receiving a fine of US$2.7 million. 

BitConnect: Bitconnect was among the highest performing cryptocurrencies in 2017, promising investors enormous returns through a trading bot.  At its height it reached a market capitalization of US$3.4 billion.  In early 2018 the exchanged ceased to operate with investors losing millions of dollars, amounting to a total of US$14.5 million.  It later turned out that the initial profits were generated through a ponzi scheme by paying earlier customers with money made through newer customers.  Legal action against the perpetrators was taken on an international scale. 

Centra: Centra was a Miami-based company claiming to offer a cryptocurrency-based debit card backed by VISA and Mastercard. The company raised US$32 million by October 2017 through an ICO and few months later performing an exit-scam. In April 2018 two of the founders were arrested. It was soon revealed that neither Mastercard nor VISA backed the company in their alleged efforts. 

Modern Tech (PinCoin/iFan): Based in Vietnam, Modern Tech hosted two separate ICOs for PinCoin as well as iFan promising monthly returns of 48%.  After the initial success the founders ran off with approximately US$660 million raised from 32,000 investors.  The founders are still at large and none of the funds have been retrieved. 

PlexCoin: After Dominic Lacroix and Sabrina Paradis-Rogers (the founders of PlexCoin) had officially raised around US$15 million through a fraudulent ICO in August 2017 while promising a return of 1,354 % within a month, the SEC filed a civil complaint in December of the same year against them and sought an injunction to cease those sales, freeze the assets involved, pay civil penalties and prohibit the ones responsible behind the token launch from participating in any future offerings of cryptocurrency.  Shortly after Lacroix was sentenced to two months in prison and fined Can$110,000 by the Quebec Superior Court.  The SEC's proceedings lead to seven-figure fines for the defendants in 2019 and a retrieval of the investors' funds.  During the proceedings the SEC was able to prove that the success of the ICO was inflated by the founders who in fact had raised US$8.5 million instead of the US$15 million they had announced. 

Ponzi schemes

Ponzi schemes are another common form of utilizing blockchainbased technologies to commit fraud. Most schemes of this sort use multi-level marketing schemes to encourage investors to conduct risky investments.  Onecoin is one of the more notable examples of cryptocurrency-ponzi schemes: Founded in 2014 by Ruja Ignatova, OneCoin is estimated to have generated US$4 billion in income.  While at least in China some of the investors' funds have been recovered and several members of the organisation arrested in the U.S., Ignatova herself is still at large. 

Money laundering

Due to the inability of third parties to de-pseudonymize cryptotransactions criminal entities have often resorted to using cryptocurrency to conduct money laundering.  Especially ICOs lacking KYC guidelines and anti-money laundering procedures are often used to launder illicit funds due to the pseudonymity offered by them.  By using ICOs criminals launder these funds by buying tokens off of legitimate investors and selling them. This issue is intensified through the lack of measures against money laundering implemented by centralized cryptocurrency-exchanges. 

A well-known early example of money laundering using cryptocurrencies is Silk Road. Shut down in 2013 with its founder Ross Ulbricht indicted for among other counts a money laundering conspiracy, the website was used for several illicit activities including money laundering solely using Bitcoin as a form of payment. 

Apart from traditional cryptocurrencies, Non-Fungible Tokens (NFTs) are also commonly used in connection with money laundering activities.  NFTs are often used to perform Wash Trading by creating several different wallets for one individual, generating several fictitious sales and consequently selling the respective NFT to a third party.  According to a report by Chainalysis these types of wash trades are becoming increasingly popular among money launderers especially due to the largely anonymous nature of transactions on NFT marketplaces.   Auction platforms for NFT sales may face regulatory pressure to comply with anti-money laundering legislation. 

Regulatory Measures

Canada is generally regarded as the first state-actor implementing regulatory measures dealing with money laundering conducted by usage of cryptocurrencies.  By 2013 the Financial Crimes Enforcement Network (FinCEN) — in direct reference to the centralized exchange Mt. Gox — issued regulations making it clear that all crypto-to-fiat exchangers had to apply KYC- as well as anti-money laundering methods.  Any suspicious transactions have therefore to be reported to the authorities.  Centralized exchanges have to register as money transmitters, with the exact definition of who and what constitutes a money transmitter in the cryptosphere being somewhat blurred and regulations differing between the different states of the U.S.  An important exemption from these regulations are decentralized exchanges due to the fact that they do not hold any fiat-currency. 

As part of the Fourth Anti-Money Laundering Directive of 2015 and in an effort to combat money laundering and the financing of terrorism, the European Union has issued a directive making all member-states to have to make sure that cryptoexchanges are licensed and registered.  The EU is furthermore planning to take measures to ensure that all customers of cryptocurrency-exchanges are to verify their identity as part of the registration process. 

Regarding NFTs

Auction platforms for NFT sales may face regulatory pressure to comply with anti-money laundering legislation. A February 2022 study from the United States Treasury assessed that there was "some evidence of money laundering risk in the high-value art market," including through "the emerging digital art market, such as the use of non-fungible tokens (NFTs)."  The study considered how NFT transactions may be a simpler option for laundering money through art by avoiding the transportation or insurance complications in trading physical art. Several NFT exchanges were labeled as virtual asset service providers that may be subject to Financial Crimes Enforcement Network regulations. 

The European Union has yet to establish specific regulations to combat money laundering through NFTs. The European Commission announced in July 2022 that it is planning to draw regulations regarding that issue by 2024.  

Further examples

Josh Garza, who 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 US$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.  Garza was later found guilty of fraud and ordered to pay US$9 million and begin serving a 21-month sentence commencing January 2019 by the U.S. Attorney’s Office District of Connecticut. 

The cryptocurrency community refers to pre-mining, hidden launches, ICO or extreme rewards for the altcoin founders as deceptive practices.  This is at times an inherent part of the cryptocurrency's design.  Pre-mining refers to the practice of generating the currency before its released to the public. 

FTX and Alameda Research founder and CEO Sam Bankman-Fried was indicted by the U.S. District Court for the Southern District of New York in December 2022 and charged with commodities and wire fraud, securities fraud and money laundering, as well as with violating campaign finance laws.  

Malware

Malware attacks

Some malware can steal private keys for bitcoin wallets allowing the bitcoins themselves to be stolen. The most common type searches computers for cryptocurrency wallets to upload to a remote server where they can be cracked and their coins were stolen. Many of these also log keystrokes to record passwords, often avoiding the need to crack the keys.  A different approach detects when a bitcoin address is copied to a clipboard and quickly replaces it with a different address, tricking people into sending bitcoins to the wrong address.  This method is effective because bitcoin transactions are irreversible. : 57 

One virus, spread through the Pony botnet, was reported in February 2014 to have stolen up to $220,000 in cryptocurrencies including bitcoins from 85 wallets.  Security company Trustwave, which tracked the malware, reports that its latest version was able to steal 30 types of digital currency. 

A type of Mac malware active in August 2013, Bitvanity posed as a vanity wallet address generator and stole addresses and private keys from other bitcoin client software.  A different trojan for macOS, called CoinThief was reported in February 2014 to be responsible for multiple bitcoin thefts.  The software was hidden in versions of some cryptocurrency apps on Download.com and MacUpdate. 

Ransomware

Many types of ransomware demand payment in bitcoin.   One program called CryptoLocker, typically spread through legitimate-looking email attachments, encrypts the hard drive of an infected computer, then displays a countdown timer and demands a ransom in bitcoin, to decrypt it.  Massachusetts police said they paid a 2 bitcoin ransom in November 2013, worth more than $1,300 at the time, to decrypt one of their hard drives.  Bitcoin was used as the ransom medium in the WannaCry ransomware.  One ransomware variant disables internet access and demands credit card information to restore it, while secretly mining bitcoins. 

As of June 2018, most ransomware attackers preferred to use currencies other than bitcoin, with 44% of attacks in the first half of 2018 demanding Monero, which is highly private and difficult to trace, compared to 10% for bitcoin and 11% for Ether. 

Unauthorized mining

This section is an excerpt from Cryptojacking.

Cryptojacking is the act of exploiting a computer to mine cryptocurrencies, often through websites,    against the user's will or while the user is unaware.  One notable piece of software used for cryptojacking was Coinhive, which was used in over two-thirds of cryptojacks before its March 2019 shutdown.  The cryptocurrencies mined the most often are privacy coins—coins with hidden transaction histories—such as Monero and Zcash.  

Like most malicious attacks on the computing public, the motive is profit, but unlike other threats, it is designed to remain completely hidden from the user. Cryptojacking malware can lead to slowdowns and crashes due to straining of computational resources. 

Bitcoin mining by personal computers infected with malware is being challenged by dedicated hardware, such as FPGA and ASIC platforms, which are more efficient in terms of power consumption and thus may have lower costs than theft of computing resources. 

Phishing

A phishing website to generate private IOTA wallet seed passphrases, and collected wallet keys, with estimates of up to US$4 million worth of MIOTA tokens stolen. The malicious website operated for an unknown amount of time and was discovered in January 2018. 

Fraud factories

Fraud factories in Asia traffic workers to scam westerners into buying cryptocurrencies online. 

Other incidents

In 2015, two members of the Silk Road Task Force—a multi-agency federal task force that carried out the U.S. investigation of Silk Road—were convicted over charges pertaining to corruption.  Former DEA agent, Carl Mark Force, had attempted to extort Silk Road founder Ross Ulbricht ("Dread Pirate Roberts") by faking the murder of an informant. He pleaded guilty to money laundering, obstruction of justice, and extortion under color of official right, and was sentenced to 6.5 years in federal prison.  Former U.S. Secret Service agent, Shaun Bridges, pleaded guilty to crimes relating to his diversion of $800,000 worth of bitcoins to his personal account during the investigation, and also separately pleaded guilty to money laundering in connection to another cryptocurrency theft. Bridges were sentenced to almost eight years in federal prison. 

Gerald Cotten founded QuadrigaCX in 2013, after graduating from the Schulich School of Business in Toronto. Cotten was acting as the sole curator of the exchange. Quadriga had no official bank accounts since banks at the time had no method of managing cryptocurrency. In late 2018, Canada's largest crypto exchange QuadrigaCX lost US$190 million in cryptocurrency when the owner died; he was the only one with knowledge of the password to a storage wallet. The exchange filed for bankruptcy in 2019. 

Michael Terpin, the founder and chief executive officer of Transform Group, a San Juan, Puerto Rico-based company that advises blockchain businesses on public relations and communications, sued Ellis Pinsky in New York on May 7, 2020, for leading a "sophisticated cybercrime spree" that stole US$24 million in cryptocurrency by hacking into Terpin's phone in 2018.   Terpin also sued Nicholas Truglia and won a $75.8 million judgment against Truglia in 2019 in California state court. 

On July 15, 2020, Twitter accounts of prominent personalities and firms, including Joe Biden, Barack Obama, Bill Gates, Elon Musk, Jeff Bezos, Apple, Kanye West, Michael Bloomberg and Uber were hacked. Twitter confirmed that it was a coordinated social engineering attack on their own employees. Twitter released its statement six hours after the attack took place. Hackers posted the message to transfer the Bitcoin in a Bitcoin wallet, which would double the amount. The wallet's balance was expected to increase to more than $100,000 as the message spread among the Twitter followers. 

In 2021, US Authorities carried out a raid on James Zhong's home in Gainesville, Georgia. Authorities found over 51,000 bitcoin that Zhong had stolen from Silk Road between 2012 and 2013. Through an error on Silk Road, Zhong was able to withdraw more bitcoin than what was initially deposited. He concealed his identity and was able to evade authorities for nearly a decade. Zhong ended up pleading guilty to wire fraud and was sentenced to 1 year and 1 day in prison along with a forfeiture of all bitcoin. 

In 2022, the Federal Trade Commission reported that $139 million in cryptocurrency was stolen by romance scammers in 2020.  Some scammers targeted dating apps with fake profiles. 

In early 2022, the Beanstalk cryptocurrency was stripped of its reserves, which were valued at more than US$180 million, after attackers had managed to use borrowed US$80 million in cryptocurrency to buy enough voting rights to transfer the reserves to their own accounts outside the system. It was initially unclear if such an exploit of governance procedures was illegal. 

The digital economy is a portmanteau of digital computing and economy, and is an umbrella term that describes how traditional brick-and-mortar economic activities (production, distribution, trade) are being transformed by Internet, World Wide Web, and blockchain technologies. 

The digital economy is backed by the spread of information and communication technologies (ICT) across all business sectors to enhance its productivity. A phenomenon referred to as the Internet of Things (IoT) is increasingly prevalent, as consumer products are embedded with digital services and devices. 

According to the WEF, 70% of the global economy will be made up of digital technology over the next 10 years (from 2020 onwards). This is a trend accelerated by the COVID-19 pandemic and the tendency to go online. The future of work, especially since the COVID-19 pandemic, is also contributing to the digital economy. More people are now working online, and with the increase of online activity that contributes to the global economy, companies that support the systems of the Internet are more profitable. 

Digital transformation of the economy is altering conventional notions about how businesses are structured, how consumers obtain goods and services, and how states need to adapt to new regulatory challenges. The digital economy has the potential to profoundly shape economic interactions between states, businesses and individuals. The emergence of the digital economy has prompted new debates over privacy rights, competition, and taxation, with calls for national and transnational regulations of the digital economy. 

Definition

The Digital Economy also referred to as the New Economy, refers to an Economy in which digital computing technologies are used in Economic Activities.

The term Digital Economy came into use during the early 1990s. For example, many academic papers were published by New York University’s Center for Digital Economy Research. The term was the title of Don Tapscott's 1995 book, The Digital Economy: Promise and Peril in the Age of Networked Intelligence.

According to Thomas Mesenbourg (2001), three main components of the digital economy concept can be identified:

E-business infrastructure (hardware, software, telecom, networks, human capital, etc.),

E-business (how business is conducted, any process that an organization conducts over computer-mediated networks),

E-commerce (transfer of goods, for example when a book is sold online).

Bill Imlah states that new applications are blurring these boundaries and adding complexity, for example, social media and Internet search. 

In the last decade of the 20th century, Nicholas Negroponte (1995) used a metaphor of shifting from processing atoms to processing bits: "The problem is simple. When information is embodied in atoms, there is a need for all sorts of industrial-age means and huge corporations for delivery. But suddenly, when the focus shifts to bits, the traditional big guys are no longer needed. Do-it-yourself publishing on the Internet makes sense. It does not for a paper copy." 

The digital economy is variously known as the Internet Economy, Web Economy, Cryptoeconomy, and New Economy. Since the digital economy is continuously replacing and expanding the traditional economy, there is no clear delineation between the two integrated economy types. The digital economy results from billions of daily online transactions among people, organizations (businesses, educational institutions, non-profits), and distributed computing devices (servers, laptops, smartphones, etc.) enabled by Internet, World Wide Web, and blockchain technologies.

Development of the concept

There are varied definitions of the digital economy. There are multiple similar concepts for broadly the same phenomenon. According to the OECD, the Digital Economy can be defined in three different approaches:

Bottom-up approach: characterizing industries’ and firms‘ output or production processes to decide whether they should be included in the Digital Economy, 

Top-down or trend-based approach: first identifying the key trends driving the digital transformation and then analyzing the extent to which these are reflected in the real economy, 

Flexible or tiered approach: breaking the Digital Economy into core and non-core components, and thereby finding a compromise between adaptability and the need to arrive at some common ground on the meaning of the term. 

Bottom-up definition

Bottom-up definitions define the Digital Economy as the aggregate of a specific indicator for a set of industries identified as actors in the Digital Economy. Whether an industry is considered an actor depends on the nature of the products (narrow) or the proportion of digital inputs used in production processes (broad). 

Hence, from a bottom-up and narrow perspective, the Digital Economy is "all industries or activities that directly participate in producing, or crucially reliant on digital inputs." For instance, McKinsey adds up the economic outputs of the ICT sector and e-commerce market in terms of online sales of goods and consumer spending on digital equipment. While this definition is adept at measuring the impact of digitalization on economic growth, it only focuses on the nature of output and offers an incomplete view of the Digital Economy's development. 

In a bottom-up and broad perspective, the Digital Economy is "all industries using digital inputs as part of their production process". Examples of digital inputs include digital infrastructure, equipment, and software but can include data and digital skills. 

Top-down definition

Top-down definitions identify broad trends at play in the digital transformation and define the Digital Economy as the result of their combined impact on value creation. These include such spillovers as changes in labor market demand and regulations, platform economy, sustainability, and equality. 

Unlike the bottom-up definition, the top-down definition has units of analysis extending beyond firms, industries, and sectors to include individuals, communities, and societies. While the latter definition is more inclusive, the IMF notes that it is subjective, qualitative, and open-ended, thus limiting meaningful comparative analysis. 

Flexible definition

To reconcile the bottom-up and top-down definitions of the Digital Economy, Bukht and Heeks stated that the Digital Economy consists of all sectors making extensive use of digital technologies (i.e. their existence depends on digital technologies), as opposed to sectors making intensive use of digital technologies (i.e. simply employing digital technologies to increase productivity). 

Under this definition, the Digital Economy is stratified into three nested tiers:

Core: comprising the digital sector and associated core technologies. Examples include hardware manufacturing, software and IT consulting, information services, and telecommunications, 

Narrow scope: the digital economy comprising digital services and the platform-based economy, 

Broad scope: the digitalized economy comprising digitalized sectors such as e-Business, e-Commerce, advanced manufacturing, precision agriculture, algorithmic economy, sharing economy, and gig economy. These digitalized sectors phenomenologically give rise to the Fourth Industrial Revolution. 

Elements of the digital economy

The Digital Economy consists of all sectors making extensive use of digital technologies (i.e. their existence depends on digital technologies). However, digitalization spans many economic sectors, making it far from trivial precisely delimit the digital economy within the entire societal economy 

A narrow definition would typically just encompass core digital sectors that refers to the provisioning of digital technologies, products, services, infrastructure, and solutions, as well as all forms of economic activities that are completely dependent on digital technologies and data elements. This includes key sectors like information and communication technology (ICT), but also other economic activities such as internet finance and digital commerce that are not seen as a part of the ICT-sector.

Broader definitions also include industrial digitalization, i.e. the production quantity and efficiency improvement brought about by the application of digital technology in traditional industries, as an important extension of the digital economy into the wider societal economy. Examples of industrial digitalization in traditional sectors include remote sensing, automated farming equipment, GPS-route optimization, etc. However, few studies include industrial digitalization in the digital economy.

Information technology

The information technology (IT) sector of the U.S. now makes up about 8.2% of the country's GDP and accounts for twice its share of the GDP as compared to the last decade. 45% of spending on business equipment are investments in IT products and services, which is why companies such as Intel, Microsoft, and Dell have grown from $12 million in 1987 to more than half a billion in 1997. The widespread adoption of ICT combined with the rapid decline in price and increase in the performance of these technologies, has contributed to the development of new activities in the private and public sectors. These new technologies provide market reach, lower costs, and new opportunities for products and services that were not needed before. This changes the way multinational enterprises (MNE) and startups design their business models. 

Digital platforms

A digital platform operator is an entity or person offering an online communication service to the public based on computer algorithms used to classify content, goods, or services offered online, or the connection of several parties for the sale of goods, the provision of a service, or the exchange or sharing of content, goods, and services. 

Most of the largest digital platform companies are located in either the United States or China. 

Digital trade

In the U.S. in the 1990's, the Clinton Administration proposed The Framework for Global Electronic Commerce. It contained the promotion of five principles used to guide the U.S. government's actions towards electronic commerce so that the digital economy's growth potential remains high. These five principles include the leadership of the private sector, the government avoiding undue restrictions on e-commerce, limited government involvement, the government's recognition of the Internet's unique qualities, and the facilitation of e-commerce on a global basis. 

Governments have primarily restricted digital trade through three means: 

Data flow restrictions: regulations that require that companies store data (e.g. personal information, business records, financial data, government data) in a particular country or go through a process before transferring the data abroad. For example, the EU's GDPR law only permits transfers of data on EU individuals to countries that have implemented certain data privacy safeguards and been certified by the EU.

Data localization requirements: regulations that require that data be stored on servers within a country

Digital services taxes: taxes on revenues from the sale of digital services or goods (e.g. online sales, digital advertising, e-commerce, data, streaming). By 2022, 29 countries had digital service taxes.

Gig economy

Gig work is labor that consists of temporary and flexible jobs usually done over delivery apps and rideshare services such as Grubhub, Uber, Lyft, and Uber Eats. It can be desirable to those who want more flexibility in their schedule and can allow workers to make additional income outside of their traditional jobs.

Most gig work supplements workers' traditional jobs. The full size of the gig economy and number of workers is not yet known. Katz and Krueger estimated that only 0.5% of gig workers make most of their income off of platforms like Uber, Lyft, Grubhub, and DoorDash. Since these workers are considered independent contractors, these companies are not responsible for giving its workers benefits packages like it would for regular full-time employees. This has resulted in the formation of unions between gig and platform workers and various reforms within the industry. Blockchain and Tokenized equity-sharing gig economy platforms or applications are being developed to accelerate the gig economy as a full fledged digital economy contributor using new technologies.

Impact on retail

The digital economy has had a substantial impact on retail sales of consumer product goods. One effect has been the fast proliferation of retailers with no physical presence, such as eBay or Amazon. Additionally, traditional retailers such as Walmart and Macy's have restructured their businesses to adapt to a digital economy. Some retailers, like Forever 21, have declared bankruptcy as a result of their failure to anticipate and adapt to a digital economy. Others, such as Bebe stores have worked with outside vendors to completely convert their business one that is exclusively digital. These vendors, such as IBM and Microsoft, have enabled smaller retailers to compete with large, multi-national established brands. 

Key features

Mobility

Mobility of intangibles

Both development and exploitation of intangible assets are key features of the digital economy. This investment in and development of intangibles such as software is a core contributor to value creation and economic growth for companies in the digital economy. In early 2000, companies started substantially increasing the amount of capital allocated to intangibles such as branding, design and, technology rather than in hardware, machinery or property. 

Mobility of business functions

Advancements in information and communication technologies (ICT) have significantly reduced the cost associated with the organization and coordination of complex activities over a long period. Some businesses are increasingly able to manage their global operations on an integrated basis from a central location separate geographically from the locations in which the operations are carried out, and where their suppliers or customers are. Consequently, it has allowed businesses to expand access to remote markets and provide goods and services across borders. 

Reliance on data

The Digital economy relies on personal data collection. In 1995, the Data Protection directive (Directive 95/46/CE, art.2), defined data as "any information relating to a natural person who can be identified by reference to his identification number or to information which is specific to him". At that time, this regulation emerged in response to the need to integrate the European market. By adopting common European data protection standards, the EU was able to harmonize conflicting national laws that were emerging as a trade barrier, inhibiting commerce in Europe. For this reason, GDPR and its predecessor were viewed as internal market instruments, facilitating the creation of a digital, single market by allowing an unhindered flow of data within the entire common market. 

Due to its ability to bridge the information asymmetry between supply and demand, data now has an economic value. When platforms compile personal data, they gather preferences and interests, which allow companies to exert a targeted action on the consumer through advertising. Algorithms classify, reference, and prioritize the preferences of individuals to better predict their behavior. 

Via free access to platforms in exchange for the collection of personal data, they make the content non-rival. Thus, the intangibility of content tends to give a collective natural aspect to this information accessible to everyone, to benefit public good by creating a digital public space. The McKinsey Global Institute Report (2014) notes five broad ways in which leveraging big data can create value for businesses:

Creating transparency by making data more easily accessible to stakeholders with the capacity to use the data,

Managing performance by enabling experimentation to analyze variability in performance and understand its root causes,

Segmenting populations to customize products and services,

Improve decision making by replacing or supporting human decision making with automated algorithms,

Improve the development of new business models, products, and services. 

In 2011, the Boston Consulting Group estimated that personal data collected in Europe was worth 315 billion euros. 

Network effect

The Network effect occurs when the value of a product or service to the user increases exponentially with the number of other users using the same product or service. For instance, WhatsApp provides a free communication platform with friends and contacts. The utility to use it relies on the fact that a substantial part of or friends and colleagues are already users. 

Multi-sided market

The Digital market can be labeled a ‘multi-sided’ market. The notion developed by French Nobel prize laureate Jean Tirole is based on the idea that platforms are ‘two-sided’. This can explain why some platforms can offer free content, with customers on one side and the software developers or advertisers on the other. On a market where multiple groups of persons interact through platforms as intermediaries, the decisions of each group affect the outcome of the other group of persons through a positive or negative externality. When the users spend time on a page or click on links, this creates a positive externality for the advertiser displaying a banner there. The digital Multinational enterprises (MNEs) do not collect revenue from the user side but from the advertiser side, thanks to the sale of online advertisement. 

Response

Given its expected broad impact, traditional firms are actively assessing how to respond to the changes brought about by the digital economy. For corporations, the timing of their response is of the essence. Banks are trying to innovate and use digital tools to improve their traditional business. Governments are investing in infrastructure. In 2013, the Australian National Broadband Network, for instance, aimed to provide a 1 GB/second download speed fiber-based broadband to 93% of the population over ten years. Digital infrastructure is essential for leveraging investment in digital transformation. According to a survey conducted in 2021, 16% of EU enterprises regard access to digital infrastructure to be a substantial barrier to investment. 

Some traditional companies have tried to respond to the regulatory challenge imposed by the Digital economy, including through tax evasion. Due to the immaterial nature of digital activities, these digital multinational enterprises (MNEs) are extremely mobile, which allows them to optimize tax evasion. They can carry out high volumes of sales from a tax jurisdiction. Concretely, governments face MNE fiscal optimization from companies locating their activity in the countries where tax is the lowest. On the other hand, companies can undergo double taxation for the same activity or be confronted with legal and tax vagueness. The Conseil National du Num?rique concluded that the shortfall in corporate tax gain for Apple, Google, Amazon, and Facebook was worth approximately 500 million euros in 2012. 

According to 55% of businesses surveyed in the European Investment Bank's Investment survey in 2021, the COVID-19 pandemic has increased the demand for digitalization. 46% of businesses report that they have grown more digital. 34% of enterprises that do not yet utilise advanced digital technology saw the COVID-19 crisis as a chance to focus on digitisation. Firms that have incorporated innovative digital technology are more positive about their industry's and the overall economic condition in the recovery from the COVID-19 pandemic. There is, however, a discrepancy between businesses in more developed locations and less developed regions. 

Businesses in poorer regions are more concerned about the pandemic's consequences. Companies in affected areas anticipate long-term effects on their supply chain from the outbreak. A bigger proportion of businesses anticipate permanent employment losses as a result of the digitalization transformation brought on by COVID-19. 

During the pandemic, 53% of enterprises in the European Union that had previously implemented advanced digital technology invested more to become more digital. 34% of non-digital EU organizations viewed the crisis as a chance to begin investing in their digital transformation. 38% of firms reported in a survey that they focused on basic digital technologies, while 22% focused on advanced technologies (such as robotics, AI). Organizations that invested in both advanced and basic digital technologies were found most likely to outperform during the pandemic. 

After the COVID-19 outbreak, the number of non-digital enterprises that downsized was also greater than the share of non-digital firms that had positive job growth. Non-digital companies had a negative net employment balance. Small and medium-sized businesses are falling behind big and medium-sized businesses. Only 30% of microenterprises in the European Union claimed to have taken action to advance digitalization in 2022, compared to 63% of major businesses. In comparison to 71% in the United States, the proportion of EU enterprises employing advanced digital technology increased from 2021 to 2022, reaching 69%. One in two American businesses (surveyed) and 42% of European businesses increased their investments in digitalization in response to the pandemic in 2022. 

In Europe, 31% of people work for companies that are non-digital, compared to 22% of people in the United States. This is also due to the fact that the European Union has many more small businesses than the United States. Smaller businesses are less digital, which has repercussions for the employees they hire. Non-digital enterprises tend to pay lower wages and are less likely to create new employment. They have also been less inclined to train their employees throughout the pandemic. Enterprises in the EU have lower adoption rates for the internet of things than firms in the US. The variations in adoption rates between the European Union and the United States are driven by the lower use of technologies connected to the internet of things. 

In Eastern and Central Europe, manufacturing enterprises were the most likely to have implemented various digital technologies (47%) during and after the COVID-19 pandemic, while construction firms were the least likely (14%). Large enterprises (49% versus 27%) were more likely than SMEs to employ various technologies at the same time. Enterprises in these regions excel at robotics (49%), the Internet of Things (42%), and platform implementation (38%). 

A cashless society describes an economic state in which transactions no longer use physical currency (such as banknotes and coins) as the medium. Transactions which would historically have been undertaken with cash are often now undertaken electronically. 

EU digital area

Remaining barriers to fulfill the Digital Single Market

The Digital Single Market (DSM) was included as part of the Single Market Act initiatives adopted by the European Commission (EC). The question had already come up earlier in 1990 and was brought up again later in 2010, emerging at a sensitive moment in the post-crisis of 2008, and used as a catalyst for action. The crisis created opportunities to place the Single Market upfront in the European agenda and was aimed to resolve two issues: financial supervision and economic coordination. 

This gave a new dimension to the Market. The proposal for the DSM had been made under the strategy of the Commission entitled "Digital Agenda for Europe" in the political guidelines of the second Barroso Commission and pointed out the need to eliminate barriers in order to implement the European Digital Market as an attempt to relaunch the Single Market. This strategy was similar to the one used for the Internal Market in 1985 and focused on one of the weaknesses of the latter, namely the fragmentation of the national digital market. Building on the Monti report, the communication 'Towards a Single Market Act' detailed 50 proposals to reform the SM by the end of 2012. But the DSM was only adopted in 2015 and the proposal for a directive of the European Parliament and the Council was made in September 2016.

The DSM is presented as a key priority in the economy of Union, even if there were several attempts to deepen the integration, there are still obstacles remaining. The creation of the DSM constitutes a catalyst to resolve several issues, and was supposed to have a widespread multiplier effect throughout sectors across the EU. The EU Commission faced several obstacles. The commission acts in a way to deeply transform the Single Market. However, the EC lacked political support to enhance the impact of its decision. 

The issue of the low salience was a causal factor explaining the limits of the commission's commitment to reform the single market. Even though the member states approved the DSM, and the definition for the DSM was accepted by European institutions as a key priority, only one proposal was adopted at the end of 2012. Despite being a priority in the SMA I & II, legislative initiatives failed due to the high cost of implementation measures. Also, there were its potential ‘blockbuster for economic gains’ and the protest of citizens against sovereign debt countries' rescue and bank bail-outs. The slow adoption of the proposal is partly due to member states’ protectionist temptations after the economic crisis. Each state wanted to put forward its preferences and legislation concerning this field.

With regard to artificial intelligence (AI), the Commission adopted various initiatives with no meaningful coordination. The more pervasive the digital ecosystem becomes, the more sector-specific regulatory framework may need to be merged into general regimes. 

Though the Commission used the crisis as a window of opportunity, it did not allow it to go further in implementing a high transformation of the Single Market. The crisis context pushed the political actors to move forward to better manage the crisis, but did not permit it to fully implement the DSM.

Current challenges

One of the key priorities of the EU is to guarantee fair competition. Yet, within the Digital Market, the competition may be distorted. With more exertion of network effects comes higher barriers to entry (difficulty for a new entrant to enter the market and compete) in the market. Vertical or horizontal mergers and acquisitions take place in closed ecosystems. In order to limit this problem in the digital ecosystem, the EU aims to qualify certain firms as either as an "abuse of dominant position" or a "cartel" which are against the competition prosperity within the Single Market. Digital companies such as the GAFA prosper thanks to their various free services that they make available to consumers, which appear beneficial for consumers, but less so for firms in potential competition. It my be difficult for regulators to sanction firms such as GAFA, due to the jobs and services they provide worldwide.

Challenges for the regulator

Certain challenges may exist for regulators. One example is in identifying and defining platforms. Member states lack coordination, and may be independent of the regulator, who can not have a global vision of the market. Also, tax evasion of digital MNEs has become a growing concern for most of the European governments, including the European Commission. Attracting foreign investment is less and less seen as a relevant reason to implement tax cuts. Aside from the fiscal revenue shortfall, this issue has taken a political turn in recent years since some people and politicians feel that, in a time of financial crisis, these highly profitable firms do not contribute to the national effort. 

Strength within the EU digital policy

The Digital Market is characterized by its heterogeneity. The European Market is in a difficult position to compete with other advanced countries within the Digital World (such as US or China). There are currently no European digital champions. The European Digital Market is divided in regulations, standards, usages, and languages. The member states cannot meet the demand, or support innovation (R&D), due to the fact that the digital environment is by nature global. As noted by the European parliament, taxation on Digital Market could bring about 415bn euros to the EU economy, and be considered as an incentive to further deepen the EU integration (EP opinion's 2014).

Mechanisms of control

The EU controls ex-post (in the case of abuse of dominance for example) and seems to be very cautious in term of concurrence (exclusive competence). The EU sanctions cartels’ behavior and examines mergers in order to preserve competition and protect small and medium enterprises (SMEs) entering the market. Within the digital market, mergers often create digital firm dominance, thus possibly preventing European equivalents. Moreover, regulation could in theory protect people working in the digital sector or for the digital sector (such as Uber drivers, a case recently in France), which could present opportunity. However, the EU may need to be cautious with regulation in order to create barriers at the market entry. 

European Commission versus Google

In 2017, the EC fined Google €2.42 billion for abusing its dominant position as a search engine by giving an illegal advantage to Google Shopping. The EC aimed to pave the way to relieve firms suffering from its abuse of dominant position. Moreover, it sought to prove that the EC's strategy does works and companies may be fined at high rates.

Juncker Commission

The Digital Economy has been a concern for the Juncker Commission concern since the 1st Barroso Commission. Yet, it is only under the Juncker Commission that the strategy of the DSM was adopted on 6 May 2015 as it was ranked as the second priority out of the 10 priorities for the new Commission's mandate. Throughout this document, the DSM emphasized 3 policy pillars:

improving access to digital goods and services,

an environment where digital networks and services can prosper,

digital as a driver of growth. 

As a key priority for the newly President-elect Juncker, he made Andrus Ansip, the vice-president of the Commission, in charge of the DSM. The decision to approach the DSM from a different point of view is also because the digital space is in constant evolution with the growing importance of online platform and the change of market share. The DSM was a priority because of its economic importance; the total of EU e-commerce reached 240 billion € in 2011, and out of that 44 billion were cross-border trade between member states. 

Impacts

Economy

According to a 2016 estimate, the Digital Economy represented $11.5 trillion, or 15.5% of global GDP (18.4% of GDP in developed economies and 10 per cent in developing economies on average). It found that the digital economy had grown two and a half times faster than global GDP over the previous 15 years, almost doubling in size since 2000. Most of the value in the digital economy was produced in only a few economies: the United States (35%), China (13%) and Japan (8%). The EU together with Iceland, Liechtenstein and Norway accounted for another 25%. 

Some scholars have argued that the digital economy entails unequal economic exchanges where users and consumers provide value to digital firms in the form of data but are not compensated for doing so. 

Energy

The Digital Economy uses a tenth of the world's electricity. The move to the cloud has also caused the rise in electricity use and carbon emissions. A server room at a data center can use, on average, enough electricity to power 180,000 homes. The Digital Economy can be used for mining Bitcoin which, according to Digiconomist, uses an average of 70.69 TWh of electricity per year. The number of households that can be powered using the amount of power that bitcoin mining uses is around 6.5 million in the US. 

Privacy rights

Data gathering and tracking of individual behaviors by digital firms has implications for privacy rights. Data collected on individuals can be analyzed and monetized by technology firms without compensation to users. The data is not only used to predict behaviors, but influence behavior. The data collected is at risk of breaches where personal information can be intentionally or inadvertently exposed. 

Taxation

The digital economy has implications for international tax rules. Digital technology companies produce goods that are not necessarily tied to specific geographical locations, which complicates taxation of those companies. Digital technology can therefore enable tax evasion and tax avoidance. 

Competition and antitrust

The digital economy is characterized by network effects, rapid development of economies of scale, first-mover advantages and winner-takes-all dynamics, which make it possible for a small number of firms to gain a dominant market position and impede entry by potential competitors. These dynamics create concerns about market power, which could enable firms to charge higher prices and pay lower wages than if they experienced competition. Market power could also lead to outsized political influence by dominant technology firms, leading to deregulation. In some cases, digital platform companies can pit their users against governments, thus discouraging stringent regulations. 

Job displacement and offshoring

By increasing automation of tasks previously performed by human workers, the digital economy has the potential to cause job displacement. Whether automation causes net job displacement depends on whether the gains from automation lead to greater consumer demand (by lowering prices for goods and services, and increasing household incomes) and whether the introduction of new labor-intensive tasks will create new jobs. 

Digital technology has facilitated the spread of global value chains and made it easier for capital in developed countries to access labor in the developing world, which can lead to greater offshoring and potentially harm low-skilled workers in developed countries. 

Labor rights

The rise of digital platform companies has implications for the nature of work (in particular in the gig economy) and labor rights. 

Gig workers are generally classified as ‘independent workers’ (with temporary, off-site, autonomous contracts) which challenges the application of labor and occupational health and safety law. As a result, online platforms encourage the flexibilization of jobs and a higher volatility of the labor market, as opposed to traditional companies. Gig economy companies such as Deliveroo and Uber hire self-employed drivers who sign a contract with the digital platform while the way they work is similar to a regular employee statute. Yet, for the first time, in March 2020, France's top court (Cour de Cassation) ruling acknowledged that an Uber driver could not qualify as a ‘self-employed’ contractor because he could not build his clientele or set his prices, establishing a relation of a subordinate of the company. 

Fiat money is a type of currency that is not backed by a commodity, such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was quite rare until the 20th century, but there were some situations where banks or governments stopped honoring redeemability of demand notes or credit notes, usually temporarily. In modern times, fiat money is generally authorized by government regulation.

Fiat money generally does not have intrinsic value and does not have use value. It has value only because the individuals who use it as a unit of account – or, in the case of currency, a medium of exchange – agree on its value. They trust that it will be accepted by merchants and other people.

Fiat money is an alternative to commodity money, which is a currency that has intrinsic value because it contains, for example, a precious metal such as gold or silver which is embedded in the coin. Fiat also differs from representative money, which is money that has intrinsic value because it is backed by and can be converted into a precious metal or another commodity. Fiat money can look similar to representative money (such as paper bills), but the former has no backing, while the latter represents a claim on a commodity (which can be redeemed to a greater or lesser extent). 

Government-issued fiat money banknotes were used first during the 11th century in China. Fiat money started to predominate during the 20th century. Since President Richard Nixon's decision to suspend US dollar convertibility to gold in 1971, a system of national fiat currencies has been used globally.

Fiat money can be:

Any money that is not backed by a commodity.

Money declared by a person, institution or government to be legal tender, meaning that it must be accepted in payment of a debt in specific circumstances. 

State-issued money which is neither convertible through a central bank to anything else nor fixed in value in terms of any objective standard. 

Money used because of government decree. 

An otherwise non-valuable object that serves as a medium of exchange (also known as fiduciary money). 

The term fiat derives from the Latin word fiat, meaning "let it be done" used in the sense of an order, decree or resolution.

Treatment in economics

In monetary economics, fiat money is an intrinsically valueless object or record that is accepted widely as a means of payment. Accordingly, the value of fiat money is greater than the value of its metal or paper content.

One justification for fiat money comes from a micro-founded model. In most economic models, agents are intrinsically happier when they have more money. In a model by Lagos and Wright, fiat money doesn't have an intrinsic worth but agents get more of the goods they want when they trade assuming fiat money is valuable. Fiat money's value is created internally by the community and, at equilibrium, makes otherwise infeasible trades possible. 

Another mathematical model that explains the value of fiat money comes from game theory. In a game where agents produce and trade objects, there can be multiple Nash equilibria where agents settle on stable behavior. In a model by Kiyotaki and Wright, an object with no intrinsic worth can have value during trade in one (or more) of the Nash Equilibria. 

History

China

China has a long history with paper money, beginning in the 7th century CE. During the 11th century, the government established a monopoly on its issuance, and about the end of the 12th century, convertibility was suspended. The use of such money became widespread during the subsequent Yuan and Ming dynasties. 

The Song Dynasty in China was the first to issue paper money, jiaozi, about the 10th century CE. Although the notes were valued at a certain exchange rate for gold, silver, or silk, conversion was never allowed in practice. The notes were initially to be redeemed after three years' service, to be replaced by new notes for a 3% service charge, but, as more of them were printed without notes being retired, inflation became evident. The government made several attempts to maintain the value of the paper money by demanding taxes partly in currency and making other laws, but the damage had been done, and the notes became disfavored. 

The succeeding Yuan Dynasty was the first dynasty of China to use paper currency as the predominant circulating medium. The founder of the Yuan Dynasty, Kublai Khan, issued paper money known as Jiaochao during his reign. The original notes during the Yuan Dynasty were restricted in area and duration as in the Song Dynasty.

During the 13th century, Marco Polo described the fiat money of the Yuan Dynasty in his book The Travels of Marco Polo. 

All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver... and indeed everybody takes them readily, for wheresoever a person may go throughout the Great Kaan's dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold.

—?Marco Polo, The Travels of Marco Polo

Europe

Washington Irving records an emergency use of paper money by the Spanish for a siege during the Conquest of Granada (1482–1492). In 1661, Johan Palmstruch issued the first regular paper money in the West, by royal charter from the Kingdom of Sweden, through a new institution, the Bank of Stockholm. While this private paper currency was largely a failure, the Swedish parliament eventually assumed control of the issue of paper money in the country. By 1745, its paper money was inconvertible to specie, but acceptance was mandated by the government. This fiat currency depreciated so rapidly that by 1776 it was returned to a silver standard. Fiat money also has other beginnings in 17th-century Europe, having been introduced by the Bank of Amsterdam in 1683. 

New France 1685–1770

Main article: Card money in New France

See also: History of the Canadian dollar

In 17th century New France, now part of Canada, the universally accepted medium of exchange was the beaver pelt. As the colony expanded, coins from France came to be used widely, but there was usually a shortage of French coins. In 1685, the colonial authorities in New France found themselves seriously short of money. A military expedition against the Iroquois had gone badly and tax revenues were down, reducing government money reserves. Typically, when short of funds, the government would simply delay paying merchants for purchases, but it was not safe to delay payment to soldiers due to the risk of mutiny.

Jacques de Meulles, the Intendant of Finance, conceived an ingenious ad hoc solution – the temporary issuance of paper money to pay the soldiers, in the form of playing cards. He confiscated all the playing cards in the colony, had them cut into pieces, wrote denominations on the pieces, signed them, and issued them to the soldiers as pay in lieu of gold and silver. Because of the chronic shortages of money of all types in the colonies, these cards were accepted readily by merchants and the public and circulated freely at face value. It was intended to be purely a temporary expedient, and it was not until years later that its role as a medium of exchange was recognized. The first issue of playing card money occurred during June 1685 and was redeemed three months later. However, the shortages of coinage reoccurred and more issues of card money were made during subsequent years. Because of their wide acceptance as money and the general shortage of money in the colony, many of the playing cards were not redeemed but continued to circulate, acting as a useful substitute for scarce gold and silver coins from France. Eventually, the Governor of New France acknowledged their useful role as a circulating medium of exchange. 

As the finances of the French government deteriorated because of European wars, it reduced its financial assistance to its colonies, so the colonial authorities in Canada relied more and more on card money. By 1757, the government had discontinued all payments in coin and payments were made in paper instead. In an application of Gresham’s Law – bad money drives out good – people hoarded gold and silver, and used paper money instead. The costs of the Seven Years' War resulted in rapid inflation in New France. After the British conquest in 1760, the paper money became almost worthless, but business did not end because gold and silver that had been hoarded came back into circulation. By the Treaty of Paris (1763), the French government agreed to convert the outstanding card money into debentures, but with the French government essentially bankrupt, these bonds were defaulted and by 1771 they were worthless.

The Royal Canadian Mint still issues Playing Card Money in commemoration of its history, but now in 92.5% silver form with gold plate on the edge. It therefore has an intrinsic value which considerably exceeds its fiat value. The Bank of Canada and Canadian economists often use this early form of paper currency to illustrate the true nature of money for Canadians. 

18th and 19th century

An early form of fiat currency in the American Colonies was "bills of credit." Provincial governments produced notes which were fiat currency, with the promise to allow holders to pay taxes with those notes. The notes were issued to pay current obligations and could be used for taxes levied at a later time. Since the notes were denominated in the local unit of account, they were circulated from person to person in non-tax transactions. These types of notes were issued particularly in Pennsylvania, Virginia and Massachusetts. Such money was sold at a discount of silver, which the government would then spend, and would expire at a fixed date later. 

Bills of credit have generated some controversy from their inception. Those who have wanted to emphasize the dangers of inflation have emphasized the colonies where the bills of credit depreciated most dramatically: New England and the Carolinas. Those who have wanted to defend the use of bills of credit in the colonies have emphasized the middle colonies, where inflation was practically nonexistent. 

Colonial powers consciously introduced fiat currencies backed by taxes (e.g., hut taxes or poll taxes) to mobilise economic resources in their new possessions, at least as a transitional arrangement. The purpose of such taxes was later served by property taxes. The repeated cycle of deflationary hard money, followed by inflationary paper money continued through much of the 18th and 19th centuries. Often nations would have dual currencies, with paper trading at some discount to money which represented specie.

Examples include the “Continental” bills issued by the U.S. Congress before the United States Constitution; paper versus gold ducats in Napoleonic era Vienna, where paper often traded at 100:1 against gold; the South Sea Bubble, which produced bank notes not representing sufficient reserves; and the Mississippi Company scheme of John Law.

During the American Civil War, the Federal Government issued United States Notes, a form of paper fiat currency known popularly as 'greenbacks'. Their issue was limited by Congress at slightly more than $340 million. During the 1870s, withdrawal of the notes from circulation was opposed by the United States Greenback Party. It was termed 'fiat money' in an 1878 party convention. 

20th century

After World War I, governments and banks generally still promised to convert notes and coins into their nominal commodity (redemption by specie, typically gold) on demand. However, the costs of the war and the required repairs and economic growth based on government borrowing afterward made governments suspend redemption by specie. Some governments were careful of avoiding sovereign default but not wary of the consequences of paying debts by consigning newly printed cash not associated with a metal standard to their creditors, which resulted in hyperinflation – for example the hyperinflation in the Weimar Republic.

From 1944 to 1971, the Bretton Woods agreement fixed the value of 35 United States dollars to one troy ounce of gold. Other currencies were calibrated with the U.S. dollar at fixed rates. The U.S. promised to redeem dollars with gold transferred to other national banks. Trade imbalances were corrected by gold reserve exchanges or by loans from the International Monetary Fund (IMF).

The Bretton Woods system was ended by what became known as the Nixon shock, a series of economic changes by United States President Richard Nixon in 1971. These changes included unilaterally canceling the direct convertibility of the United States dollar to gold. Since then, a system of national fiat monies has been used globally, with variable exchange rates between the major currencies. 

Precious metal coinage

During the 1960s, production of silver coins for circulation ceased when the face value of the coin was less than the cost of the precious metal it contained (whereas it had been greater historically). In the United States, the Coinage Act of 1965 eliminated silver from circulating dimes and quarter dollars, and most other countries did the same with their coins. The Canadian penny, which was mostly copper until 1996, was removed from circulation altogether during the autumn of 2012 due to the cost of production relative to face value. 

In 2007, the Royal Canadian Mint produced a million dollar gold bullion coin and sold five of them. In 2015, the gold in the coins was worth more than 3.5 times the face value. 

Money creation and regulation

A central bank introduces new money into an economy by purchasing financial assets or lending money to financial institutions. Commercial banks then redeploy or repurpose this base money by credit creation through fractional reserve banking, which expands the total supply of "broad money" (cash plus demand deposits).

In modern economies, relatively little of the supply of broad money is physical currency. For example, in December 2010 in the U.S., of the $8,853.4 billion of broad money supply (M2), only $915.7 billion (about 10%) consisted of physical coins and paper money. The manufacturing of new physical money is usually the responsibility of the national bank, or sometimes, the government's treasury.

The Bank for International Settlements published a detailed review of payment system developments in the Group of Ten (G10) countries in 1985, in the first of a series that has become known as "red books". Currently the red books cover the participating countries on Committee on Payments and Market Infrastructures (CPMI). A red book summary of the value of banknotes and coins in circulation is shown in the table below where the local currency is converted to US dollars using the end of the year rates. The value of this physical currency as a percentage of GDP ranges from a maximum of 19.4% in Japan to a minimum of 1.7% in Sweden with the overall average for all countries in the table being 8.9% (7.9% for the US).

Inflation

The adoption of fiat currency by many countries, from the 18th century onwards, made much larger variations in the supply of money possible. Since then, huge increases in the supply of paper money have occurred in a number of countries, producing hyperinflations – episodes of extreme inflation rates much greater than those observed during earlier periods of commodity money. The hyperinflation in the Weimar Republic of Germany is a notable example. 

Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Presently, most economists favor a small and steady rate of inflation. Small (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly to a recession, and reduces the risk that a liquidity trap (a reluctance to lend money due to low rates of interest) prevents monetary policy from stabilizing the economy. However, money supply growth does not always cause nominal increases of price. Money supply growth may instead result in stable prices at a time in which they would otherwise be decreasing. Some economists maintain that with the conditions of a liquidity trap, large monetary injections are like "pushing on a string". 

The task of keeping the rate of inflation small and stable is usually given to monetary authorities. Generally, these monetary authorities are the national banks that control monetary policy by the setting of interest rates, by open market operations, and by the setting of banking reserve requirements. 

Loss of backing

A fiat-money currency greatly loses its value should the issuing government or central bank either lose the ability to, or refuse to, continue to guarantee its value. The usual consequence is hyperinflation. Some examples of this are the Zimbabwean dollar, China's money during 1945 and the Weimar Republic's mark during 1923. A more recent example is the currency instability in Venezuela that began in 2016 during the country's ongoing socioeconomic and political crisis.

This need not necessarily occur, especially if a currency continues to be the most easily available; for example, the pre-1990 Iraqi dinar continued to retain value in the Kurdistan Regional Government even after its legal tender status was ended by the Iraqi government which issued the notes. 

Criticism of the Federal Reserve

The Federal Reserve System (also known as "the Fed") has faced various criticisms since it was authorized in 1913. Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz criticized the Fed's response to the Wall Street Crash of 1929 arguing that it greatly exacerbated the Great Depression. More recent prominent critics include former Congressman Ron Paul. 

Creation

An early version of the Federal Reserve Act was drafted in 1910 on Jekyll Island, Georgia, by Republican Senator Nelson Aldrich, chairman of the National Monetary Commission, and several Wall Street bankers. The final version, with provisions intended to improve public oversight and weaken the influence of the New York banking establishment, was drafted by Democratic Congressman Carter Glass of Virginia. The structure of the Fed was a compromise between the desire of the bankers for a central bank under their control and the desire of President Woodrow Wilson to create a decentralized structure under public control. The Federal Reserve Act was approved by Congress and signed by President Wilson in December 1913. 

Inflation policy

In The Case Against the Fed, Murray Rothbard argued in 1994 that, although a supposed core function of the Federal Reserve is to maintain a low level of inflation, its policies (like those of other central banks) have actually aggravated inflation. This occurs when the Fed creates too much fiat money backed by nothing. He called the Fed policy of money creation "legalized counterfeiting" and favored a return to the gold standard. He wrote:

[I]t is undeniable that, ever since the Fed was visited upon us in 1914, our inflations have been more intense, and our depressions far deeper, than ever before. There is only one way to eliminate chronic inflation, as well as the booms and busts brought by that system of inflationary credit: and that is to eliminate the counterfeiting that constitutes and creates that inflation. And the only way to do that is to abolish legalized counterfeiting: that is, to abolish the Federal Reserve System, and return to the gold standard, to a monetary system where a market-produced metal, such as gold, serves as the standard money, and not paper tickets printed by the Federal Reserve. 

Effectiveness and policies

The Federal Reserve has been criticized as not meeting its goals of greater stability and low inflation. This has led to a number of proposed changes including advocacy of different policy rules or dramatic restructuring of the system itself. 

Milton Friedman concluded that while governments do have a role in the monetary system he was critical of the Federal Reserve due to its poor performance and felt it should be abolished. Friedman believed that the Federal Reserve System should ultimately be replaced with a computer program. He favored a system that would automatically buy and sell securities in response to changes in the money supply. This proposal has become known as Friedman's k-percent rule. 

Others have proposed NGDP targeting as an alternative rule to guide and improve central bank policy. Prominent supporters include Scott Sumner, David Beckworth, and Tyler Cowen. 

Congress

Several members of Congress have criticized the Fed. Senator Robert Owen, whose name was on the Glass-Owen Federal Reserve Act, believed that the Fed was not performing as promised. He said:

The Federal Reserve Board was created to control, regulate and stabilize credit in the interest of all people. . . . The Federal Reserve Board is the most gigantic financial power in all the world. Instead of using this great power as the Federal Reserve Act intended that it should, the board . . . delegated this power to the banks. 

Representative Louis T. McFadden, Chairman of the House Committee on Banking and Currency from 1920 to 1931, accused the Federal Reserve of deliberately causing the Great Depression. In several speeches made shortly after he lost the chairmanship of the committee, McFadden claimed that the Federal Reserve was run by Wall Street banks and their affiliated European banking houses. In one 1932 House speech (that has been criticized as bluster ), he stated:

Mr. Chairman, we have in this country one of the most corrupt Institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve banks; . . . This evil institution has impoverished and ruined the people of the United States . . . through the corrupt practices of the moneyed vultures who control it. 

Many members of Congress who have been involved in the House and Senate Banking and Currency Committees have been open critics of the Federal Reserve, including Chairmen Wright Patman, Henry Reuss, and Henry B. Gonzalez. Representative Ron Paul, Chairman of the Monetary Policy Subcommittee in 2011, is known as a staunch opponent of the Federal Reserve System. He routinely introduced bills to abolish the Federal Reserve System, three of which gained approval in the House but lost in the Senate. 

Congressman Paul also introduced H.R. 459: Federal Reserve Transparency Act of 2011, This act required an audit of the Federal Reserve Board and the twelve regional banks, with particular attention to the valuation of its securities. His son, Senator Rand Paul, has introduced similar legislation in subsequent sessions of Congress. 

Great Depression (1929)

Milton Friedman and Anna Schwartz stated that the Fed pursued an erroneously restrictive monetary policy, exacerbating the Great Depression. After the stock market crash in 1929, the Fed continued its contraction (decrease) of the money supply and refused to save banks that were struggling with bank runs. This mistake, critics charge, allowed what might have been a relatively mild recession to explode into catastrophe. Friedman and Schwartz believed that the depression was "a tragic testimonial to the importance of monetary forces." Before the establishment of the Federal Reserve, the banking system had dealt with periodic crises (such as in the Panic of 1907) by suspending the convertibility of deposits into currency. In 1907, the system nearly collapsed and there was an extraordinary intervention by an ad-hoc coalition assembled by J. P. Morgan. In the years 1910–1913, the bankers demanded a central bank to address this structural weakness. Friedman suggested that a similar intervention should have been followed during the banking panic at the end of 1930. This might have stopped the vicious circle of forced liquidation of assets at depressed prices, just as suspension of convertibility in 1893 and 1907 had quickly ended the liquidity crises at the time. 

Essentially, in the monetarist view, the Great Depression was caused by the fall of the money supply. Friedman and Schwartz note that "[f]rom the cyclical peak in August 1929 to a cyclical trough in March 1933, the stock of money fell by over a third." The result was what Friedman calls "The Great Contraction"—a period of falling income, prices, and employment caused by the choking effects of a restricted money supply. The mechanism suggested by Friedman and Schwartz was that people wanted to hold more money than the Federal Reserve was supplying. People thus hoarded money by consuming less. This, in turn, caused a contraction in employment and production, since prices were not flexible enough to immediately fall. Friedman and Schwartz argued the Federal Reserve allowed the money supply to plummet because of ineptitude and poor leadership. 

Many have since agreed with this theory, including Ben Bernanke, Chairman of the Federal Reserve from 2006 until 2014, who, in a speech honoring Friedman and Schwartz, said:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again. 

Friedman has said that ideally he would prefer to "abolish the Federal Reserve and replace it with a computer." He preferred a system that would increase the money supply at some fixed rate, and he thought that "leaving monetary and banking arrangements to the market would have produced a more satisfactory outcome than was actually achieved through government involvement". 

In contrast to Friedman's argument that the Fed did too little to ease after the crisis, Murray Rothbard argued that the crisis was caused by the Fed being too loose in the 1920s in the book America's Great Depression.

Global financial crisis (2007–08)

Some economists, such as John B. Taylor, have asserted that the Fed was responsible, at least partially, for the United States housing bubble which occurred prior to the 2007 recession. They claim that the Fed kept interest rates too low following the 2001 recession. The housing bubble then led to the credit crunch. Then-Chairman Alan Greenspan disputes this interpretation. He points out that the Fed's control over the long-term interest rates (to which critics refer) is only indirect. The Fed did raise the short-term interest rate over which it has control (i.e., the federal funds rate), but the long-term interest rate (which usually follows the former) did not increase. 

The Federal Reserve's role as a supervisor and regulator has been criticized as being ineffective. Former U.S. Senator Chris Dodd, then-chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, remarked about the Fed's role in the 2007-2008 economic crisis, "We saw over the last number of years when they took on consumer protection responsibilities and the regulation of bank holding companies, it was an abysmal failure."

Fractional reserve banking

The Federal Reserve does not actually control the money supply directly and has delegated this authority to banks. If a bank has a reserve requirement of 10% and they have 10 million dollars in bank deposits, they can create 100 million dollars to loan out to borrowers or make other investments if it is an investment bank. It is essentially going on margin 10:1 without having to pay interest on the margin because it is money that they created themselves. This is the reason there are credit cycles or business cycles, because money supply creation is not under any single entity's control and is decentralized among many banks that are trying to do the best they can. The Federal Reserve indirectly controls this process by manipulating the Federal Funds Rate that sets the tone for interest rates on new debt throughout the economy, and intentionally puts the economy into a recession (hard landing) or slow the economy without a recession (soft landing) to tame inflation. 

Republican and Tea Party criticism

During several recent elections, the Tea Party movement has made the Federal Reserve a major point of attack, which has been picked up by Republican candidates across the country. Former Congressman Ron Paul (R) of Texas and his son Senator Rand Paul (R) of Kentucky have long attacked the Fed, arguing that it is hurting the economy by devaluing the dollar. They argue that its monetary policies cause booms and busts when the Fed creates too much or too little fiat money. Ron Paul's book End the Fed repeatedly points out that the Fed engages in money creation "out of thin air." He argued that interest rates should be set by market forces, not by the Federal Reserve. Paul argues that the booms, bubbles and busts of the business cycle are caused by the Federal Reserve's actions. 

In the book Paul argues that "the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy." David Andolfatto of the Federal Reserve Bank of St. Louis said the statement was "just plain false" and "stupid" while noting that legitimate arguments can be made against the Federal Reserve. University of Oregon economist Mark Thoma described it as an "absurd" statement which data does not support. 

Surveys of economists show overwhelming opposition to abolishing the Federal Reserve or undermining its independence. According to Princeton University economist Alan S. Blinder, "mountains of empirical evidence support the proposition that greater central bank independence produces not only less inflation but superior macroeconomic performance, e.g., lower and less volatile inflation with no more volatility in output." 

Ron Paul's criticism has stemmed from the influence of the Austrian School of Economics. More specifically, economist Murray Rothbard was a vital figure in developing his views. Rothbard attempted to intertwine both political and economic arguments together in order to make a case to abolish the Federal Reserve. When first laying out his critiques, he writes "The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of...its operations." This argument from Rothbard is outdated, however, as the Federal Reserve presently does report its balance sheet weekly as well as get audited by outside third parties. 

Rothbard also heavily critiques the Federal Reserve being independent from politics despite the Federal Reserve being given both private and public qualities. The acknowledgment of the Federal Reserve being a part of government that exists outside of politics inevitably becomes a "self-perpetuating oligarchy, accountable to no one." This ignores the fact that the Federal Reserve Board of Governors is a federal agency, appointed by the president and Senate.

Private ownership or control

According to the Congressional Research Service:

Because the regional Federal Reserve Banks are privately owned, and most of their directors are chosen by their stockholders, it is common to hear assertions that control of the Fed is in the hands of an elite. In particular, it has been rumored that control is in the hands of a very few people holding "class A stock" in the Fed.

As explained, there is no stock in the system, only in each regional Bank. More important, individuals do not own stock in Federal Reserve Banks. The stock is held only by banks who are members of the system. Each bank holds stock proportionate to its capital. Ownership and membership are synonymous. Moreover, there is no such thing as "class A" stock. All stock is the same.

This stock, furthermore, does not carry with it the normal rights and privileges of ownership. Most significantly, member banks, in voting for the directors of the Federal Reserve Banks of which they are a member, do not get voting rights in proportion to the stock they hold. Instead, each member bank regardless of size gets one vote. Concentration of ownership of Federal Reserve Bank stock, therefore, is irrelevant to the issue of control of the system (italics in original). 

According to the web site for the Federal Reserve System, the individual Federal Reserve Banks "are the operating arms of the central banking system, and they combine both public and private elements in their makeup and organization." Each of the 12 Banks has a nine-member board of directors: three elected by the commercial banks in the Bank's region, and six chosen – three each by the member banks and the Board of Governors – "to represent the public with due consideration to the interests of agriculture, commerce, industry, services, labor and consumers." These regional banks are in turn controlled by the Federal Reserve Board of Governors, whose seven members are nominated by the president of the United States and confirmed by the Senate. 

Member banks ("about 38 percent of the nation's more than 8,000 banks") are required to own capital stock in their regional banks. Until 2016, the regional banks paid a set 6% dividend on the member banks' paid-in capital stock (not the regional banks' profits) each year, returning the rest to the US Treasury Department. As of February 24, 2016, member banks with more than $10 billion in assets receive an annual dividend on their paid-in capital stock (Reserve Bank stock) of the lesser of 6% percent and the highest yield of the 10-year Treasury note auctioned at the last auction held prior to the payment of the dividend. Member banks with $10 billion or less in assets continue to be paid a set 6% annual dividend. This change was implemented during the Obama administration in order "to implement the provisions of section 32203 of the Fixing America's Surface Transportation Act (FAST Act)". The Fed has noted that this has created "some confusion about 'ownership'":

[Although] the Reserve Banks issue shares of stock to member banks...owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan…. 

In his textbook, Monetary Policy and the Financial System, Paul M. Horvitz, the former Director of Research for the Federal Deposit Insurance Corporation, stated,...the member banks can exert some rights of ownership by electing some members of the Board of Directors of the Federal Reserve Bank [applicable to those member banks]. For all practical purposes, however, member bank ownership of the Federal Reserve System is merely a fiction. The Federal Reserve Banks are not operated for the purpose of earning profits for their stockholders. The Federal Reserve System does earn a profit in the normal course of its operations, but these profits, above the 6% statutory dividend, do not belong to the member banks. All net earnings after expenses and dividends are paid to the Treasury. 

In the American Political Science Review, Michael D. Reagan wrote,

...the "ownership" of the Reserve Banks by the commercial banks is symbolic; they do not exercise the proprietary control associated with the concept of ownership nor share, beyond the statutory dividend, in Reserve Bank "profits." ...Bank ownership and election at the base are therefore devoid of substantive significance, despite the superficial appearance of private bank control that the formal arrangement creates. 

Transparency issues

One critique is that the Federal Open Market Committee, which is part of the Federal Reserve System, lacks transparency and is not sufficiently audited. A report by Bloomberg News asserts that the majority of Americans believes that the System should be held more accountable or that it should be abolished. Another critique is the contention that the public should have a right to know what goes on in the Federal Open Market Committee (FOMC) meetings. 

Free banking

Free banking is a monetary arrangement where banks are free to issue their own paper currency (banknotes) while also subject to no special regulations beyond those applicable to most enterprises.

In a free banking system, market forces control the supply of total quantity of banknotes and deposits that can be supported by any given stock of cash reserves, where such reserves consist either of a scarce commodity (such as gold) or of an artificially limited stock of fiat money issued by a central bank.

In the strictest versions of free banking, however, there either is no role at all for a central bank, or the supply of central bank money is supposed to be permanently "frozen". There is, therefore, no government agency acting as a monopoly "lender of last resort", leaving that to the private sector as happened in the US in the panic of 1907. Nor is there any government insurance of banknotes or bank deposit accounts. 

Notable supporters include Milton Friedman, Fred Foldvary, David D. Friedman, Friedrich Hayek, George Selgin, Steven Horwitz, and Richard Timberlake. 

History

Banking has been more regulated in some times and places than others, and some times and places it has hardly been regulated at all, giving some experiences of more or less free banking. Free banking systems have existed in more than 60 countries. The first system of competitive issue of notes began more than 1,000 years ago in China (see below). Free banking was widespread in the 19th century and the early 20th century. Dowd, Kevin, ed. (1992), The Experience of Free Banking, London: Routledge lists most currently known episodes of free banking and discusses in some depth a number of them, including Canada, Colombia, Foochow, France, and Ireland. Monetary arrangements with monopoly issue of notes, including government treasury issue, currency boards, and central banking, replaced all episodes of free banking by the mid 20th century. There were several reasons for the demise of free banking:

Economic theories claiming the superiority of central banking.

Desire to imitate the institutions of more advanced economies, especially Great Britain. The Bank of England was the model for many later central banks, even outside the British Empire.

Desire of national governments to collect seigniorage (revenue from issue) from note issue.

Financial crises in some free banking systems that created demands to replace free banking with another system that advocates hoped would have fewer problems.

Some prominent 18th and 19th century economists, most notably Adam Smith, defended free banking as opposed to the real bills doctrine. After the mid 19th century, though, economists interested in monetary issues focused their attention elsewhere, and free banking received little attention. Free banking as a subject of renewed debate among economists got its modern start in 1976 with The Denationalization of Money, by economist Friedrich Hayek, who advocated that national governments stop claiming a monopoly on the issuing of currency, and allow private issuers like banks to voluntarily compete to do so.

In the 1980s, this expanded into an increasingly elaborate theory of free market money and banking, with proponents Lawrence White, George Selgin, and Richard Timberlake increasingly centering their writing and research around the concept, either regarding modern theory and application, or researching the history of spontaneously free banking.

Australia

In the late 19th century, banking in Australia was subject to little regulation. There were four large banks with over 100 branches each, that together had about half of the banking business, and branch banking and deposit banking were much more advanced than other more regulated countries such as the UK and US. Banks accepted each other's notes at par. Interest margins were about 4% p.a. In the 1890s a land price crash caused the failure of many smaller banks and building societies. Bankruptcy legislation put in place at the time gave bank debtors generous terms they could restructure under, and most of the banks used this as a means to restructure their debts in their favor, even though they did not really need to. 

Switzerland

In the 19th century, several Swiss cantons deregulated banking, allowing free entry and issue of notes. Cantons retained jurisdiction over banking until the enactment of the Federal Banking Law of 1881. The centralisation of note issue reduced the problem of the existence of "a bewildering variety of notes of varying qualities ... at fluctuating exchange rates." 

Scotland

Scottish free banking lasted between 1716 and 1845, and is arguably the most researched and developed instance of free banking. The system was organized around three chartered banks – the Bank of Scotland, the Royal Bank of Scotland, and the British Linen Company – and numerous unchartered banks. It resulted in a highly stable and competitive banking system. 

United States

Although the period from 1837 to 1864 in the US is often referred to as the Free Banking Era, the term is a misnomer in terms of the definition of "free banking" above. Free Banking in the United States before the Civil War refers to various state banking systems based on what were called at the time "free banking" laws. These laws made it necessary for new entrants to secure charters, each of which was subject to a vote by the state legislature with obvious opportunities for corruption. These general banking laws also restricted banks' activities in important ways. Most importantly, US free banks could have only one office and had to provide security for their notes by gold reserves but also by purchasing and surrendering to state banking authorities certain securities the state law deemed acceptable for the purpose. The securities generally included bonds of state governments. The depreciation of these bonds was the chief cause of free bank failures in various episodes when many banks in a state failed. The lack of branch banking, in turn, caused state-issued banknotes to be discounted at varying rates once they had traveled any considerable distance from their sources, which was an inconvenience. Depreciation of assets more generally is also used to explain failures. Several authors attribute the high-rate of bank failures during the Free Banking era in the US ultimately to restrictions on banks' portfolios of assets. Then, from 1863 to 1913, known as the National Banks Era, state-chartered banks were operating under a free banking system. Some scholars have found that the system was mostly stable compared to National Banks of that era. 

Sweden

Sweden had two periods of free banking, 1830–1860 and 1860–1902. Following a bank crisis in 1857, there was a rise in popular support for private banks and private money issuers (especially Stockholms Enskilda Bank, founded in 1856). A new bank law was adopted by parliament in 1864, deregulating the interest rate. The following decades marked the height of the Swedish free banking era. After 1874, no new private banks were founded. In 1901, issuing of private money was prohibited. Research on the Swedish free banking era suggest stability, and a single bank failure related to fraud in 70 years. 

China

Jiaozi was a form of banknote which appeared around 10th century in the Sichuan capital of Chengdu, China. Between 960 and 1004, the bank notes were totally run by private merchants. Until government decided to regulate the business on alleged increasing fraud cases and disputes, and it granted 16 licenses to the biggest merchants of all. 

A cryptocurrency bubble is a phenomenon where the market increasingly considers the going price of cryptocurrency assets to be inflated against their hypothetical value. The history of cryptocurrency has been marked by several speculative bubbles. 

Some economists and prominent investors have expressed the view that the entire cryptocurrency market constitutes a speculative bubble. Adherents of this view include Berkshire Hathaway board member Warren Buffett and several laureates of the Nobel Memorial Prize in Economic Sciences, central bankers, and investors.

History

2011 booms and crashes

In February 2011, the price of bitcoin rose to US$1.06, then fell to US$0.67 that April. This spike was encouraged by several Slashdot posts about it. In June 2011, bitcoin's price again rose, to US$29.58. This came after attention from a Gawker article about the dark web market Silk Road. The price then fell to US$2.14 that November. 

2013 boom and 2014–15 crash

In November 2013, Bitcoin's price rose to US$1,127.45. It then gradually declined, bottoming out at US$172.15 in January 2015. 

2017 boom and 2018 crash

The 2018 cryptocurrency crash (also known as the Bitcoin crash and the Great crypto crash ) was the sell-off of most cryptocurrencies starting in January 2018. After an unprecedented boom in 2017, the price of Bitcoin fell by about 65% from 6 January to 6 February 2018. Subsequently, nearly all other cryptocurrencies followed Bitcoin's crash. By September 2018, cryptocurrencies collapsed 80% from their peak in January 2018, making the 2018 cryptocurrency crash worse than the dot-com bubble's 78% collapse. By 26 November, Bitcoin also fell by 80% from its peak, having lost almost one-third of its value in the previous week. 

A January 2018 article by CBS cautioned about possible fraud, citing the case of BitConnect, a British company which received a cease-and-desist order from the Texas State Securities Board. BitConnect had promised very high monthly returns but had not registered with state securities regulators or given their office address. 

In November 2018, the total market capitalization for Bitcoin fell below $100 billion for the first time since October 2017, and the price of Bitcoin fell below $4,000, representing an 80 percent decline from its peak the previous January. Bitcoin reached a low of around $3,100 in December 2018. 

Timeline of the crash

17 December 2017: Bitcoin's price briefly reaches a new all-time high of $19,783.06. 

22 December 2017: Bitcoin falls below $11,000, a fall of 45% from its peak. 

12 January 2018: Amidst rumors that South Korea could be preparing to ban trading in cryptocurrency, the price of Bitcoin depreciates by 12 percent. 

26 January 2018: Coincheck, Japan's largest cryptocurrency OTC market, is hacked. US$530 million of the NEM are stolen by the hacker, causing Coincheck to indefinitely suspend trading. The loss is the largest ever so far by an incident of theft. 

7 March 2018: Compromised Binance API keys are used to execute irregular trades. 

Late March 2018: Facebook, Google, and Twitter ban advertisements for initial coin offerings (ICO) and token sales. 

15 November 2018: Bitcoin's market capitalization falls below $100 billion for the first time since October 2017 and the price of Bitcoin falls to $5,500. 

Initial coin offerings

Wired noted in 2017 that the bubble in initial coin offerings (ICOs) was about to burst. Some investors bought ICOs in hopes of participating in the financial gains similar to those enjoyed by early Bitcoin or Ethereum speculators. 

Binance has been one of the biggest winners in this boom as it surged to become the largest cryptocurrency trading platform by volume. It lists hundreds of digital tokens on its exchange. 

In June 2018, Ella Zhang of Binance Labs, a division of the cryptocurrency exchange Binance, stated that she was hoping to see the bubble in ICOs collapse. She promised to help "fight scams and shit coins". 

2020–2022 cryptocurrency bubble

2020–2021 bubbles

From 8 to 12 March 2020, the price of Bitcoin fell by 30 percent from $8,901 to $6,206. By October 2020, Bitcoin was worth approximately $13,200. 

In November 2020, Bitcoin again surpassed its previous all-time high of over $19,000. After another surge on 3 January 2021 with $34,792.47, Bitcoin crashed by 17 percent the next day. Bitcoin traded above $40,000 for the first time on 8 January 2021 and reached $50,000 on 16 February 2021. On Wednesday, 20 October 2021, Bitcoin reached a new all-time high of $66,974. 

In early 2021, Bitcoin's price witnessed another boom, rising over 700% since March 2020, and reaching above $40,000 for the first time on 7 January. On 11 January, the UK Financial Conduct Authority warned investors against lending or investments in cryptoassets, that they should be prepared "to lose all their money". On 16 February, Bitcoin reached $50,000 for the first time. On 13 March, Bitcoin surpassed $61,000 for the first time. Following a smaller correction in February, Bitcoin plunged from its peak above $64,000 on 14 April to below $49,000 on 23 April, representing a 23% mini-crash in less than 10 days, dipping below the March bottom trading range and wiping half a trillion dollars from the combined crypto market cap.

On 14 April, Coinbase, a much hyped crypto exchange went public on the NASDAQ. Their shares grew by over 31% on their first day to $328.28, pushing their market cap to $85.8B. 

Other cryptocurrencies' prices also sharply rose, then followed by losses of value during this period. In May 2021, the value of Dogecoin, originally created as a joke, increased to 20,000% of value in one year. It then dropped 34% over the weekend.

By 19 May, Bitcoin had dropped in value by 30% to $31,000, Ethereum by 40%, and Dogecoin by 45%. Nearly all cryptocurrencies were down by double-digit percentages. Major cryptocurrency exchange Binance went down amid a market-wide price crash and traders are now seeking justice for their losses. This was partly in response to Elon Musk's announcement that Tesla would suspend payments using the Bitcoin network due to environmental concerns, along with an announcement from the People's Bank of China reiterating that digital currencies cannot be used for payments. 

Bitcoin and other cryptocurrencies experienced a solid recovery after Elon Musk met with leading Bitcoin mining companies to develop more sustainable and efficient Bitcoin mining. After bottoming out on 19 July, by early September Bitcoin had reached $52,633.54 while Ethereum grew by over 100% to $3,952.13. After a short but significant fall, both crypto's peaked on 7 November 2021 at $67,566.83 and $4,812.09, respectively. The NASDAQ would peak 12 days later on 19 November at 16,057.44. Since bottoming out after the covid crash in 2020, Bitcoin had grown over 1,200% in value while Ethereum had grown over 4,000% in value while the NASDAQ had only grown around 134%.

In September, Bitcoin officially became a legal tender in El Salvador with many news sources wondering what countries would be next. 

As of October 2021, China has continued shutting down crypto trading and mining activities, and Tesla has not yet resumed payments with Bitcoin.

2021–2023 crash

After their peak, the crypto market began to fall with the rest of the market. By the end of 2021, Bitcoin had fallen nearly 30% from its peak down to $47,686.81 and Ethereum had fallen about 23% to $3,769.70. In December 2022, The Washington Post reported "the sense that the crypto bubble has definitively popped, taking with it billions of dollars of investments made by regular people, pension funds, venture capitalists, and traditional companies". 

2022–23 timeline

Date Event

13 February 2022 Four crypto agencies purchase Super Bowl ads: Coinbase, FTX, eToro, and Crypto.com. Coinbase becomes one of the most downloaded apps after their ad airs. 

Early April The U.S. Securities and Exchange Commission (SEC) announce that they would begin to put regulations on the crypto agencies, setting the stage for a broad selloff. 

4 April Bitmex becomes the first crypto agency to announce layoffs, laying off 25% of its workers. 

3 May The Federal Reserve raises interest rates by 0.5%, triggering a broad market selloff. Over eight days, Bitcoin falls 27% to just over $29,000 and Ethereum falls 33.5% to around $1,960. The NASDAQ falls 12.5% during the following five days after the announcement.

10 May Coinbase, with shares down nearly 80% from their peak, announces that if they went bankrupt people would lose their funds. The CEO later announces that they were at no risk of bankruptcy. 

12 June Celsius Network, a crypto exchange, announces the halt of all withdrawals and transfers. Bitcoin falls 15% the following day to nearly $22,500 and Ethereum falls to $1,200. A wave of layoffs from other crypto agencies accompanies this, including from Crypto.com and Coinbase. 

13 June Tron's algorithmic stablecoin, USDD, loses its peg to the US dollar. 

17 June

Bitcoin dips below $20,000 for the first time since December 2020 and Ethereum falls below $1,000 for the first time since January 2021.

Babel Finance, a crypto lender based in Hong Kong, freezes withdrawals. 

23 June CoinFlex pauses withdrawals after a counterparty, which it later named as Roger Ver, experienced liquidity issues and failed to repay a $47 million stablecoin margin call. 

27 June Three Arrows Capital, a cryptocurrency hedge fund, defaults on a $670 million loan from Voyager Digital, a cryptocurrency broker. 

30 June FTX announces they could acquire BlockFi, a crypto firm that had laid off 20% of their staff. 

Late June Many crypto agencies begin to rethink their spending as their funds begin to dwindle. 

2 July Three Arrows Capital declares bankruptcy, owing 27 creditors a total of US$3.5 billion. 

4 July Vauld, a Singapore-based crypto lender backed by Coinbase and Peter Thiel, halts withdrawals and trading on its platform. 

5 July

eToro terminates their special-purpose acquisition company (SPAC) deal and lays off 6% of their workforce. 

Crypto broker Voyager Digital files for Chapter 11 bankruptcy. 

6 July Genesis Trading discloses that it was exposed in the Three Arrows Capital bankruptcy. 

8 July Blockchain.com announces to its shareholders that it faces a potential $270 million loss from loans made to Three Arrows Capital. 

11 July

Crypto miners in Texas temporarily shut down as an intense heat wave puts a strain on the energy grid. 

The Financial Stability Board (FSB) states that crypto "must be subject to effective regulation and oversight commensurate to the risks they pose". 

12 July A filing with the United States Bankruptcy Court for the Southern District of New York from attorneys representing Three Arrows Capital creditors states that the company founders' current whereabouts were unknown. The court freezes the company's assets. 

14 July Celsius Network declares bankruptcy. 

19 July SkyBridge Capital freezes withdrawals. 

20 July

Vauld files for protection against creditors, the equivalent of bankruptcy in Singapore. 

Zipmex, a Southeast Asian exchange, freezes withdrawals. 

25 July Coinbase comes under SEC investigation for potentially lying to their customers. This leads to a 21% drop in their stock the next day. 

8 August Singapore-based cryptocurrency lender and borrower Hodlnaut suspends withdrawals. 

7–8 November FTT, FTX's main crypto coin, crashes and loses 80% of its value, as the result of a run on the exchange. 

10 November

BlockFi halts withdrawals due to the turmoil from FTX. 

The largest stablecoin, Tether, loses its peg to the US dollar. 

11 November FTX declares bankruptcy. 

16 November Both Genesis Global Trading and Gemini halt withdrawals. 

28 November BlockFi declares bankruptcy, citing exposure to FTX as the main cause. 

20 January 2023 Genesis files for Chapter 11 bankruptcy from exposure to FTX. 

12 February 2023 Following the collapse of several big exchanges, no crypto agency purchased a Super Bowl ad. 

2 March 2023 Shares in Silvergate Capital, an influential banker to the cryptocurrency industry, plunge 57.7% after the group said in a filing with the SEC that it would not be able to submit its annual 10-K report in time. 

7 March 2023 The SEC freezes BKCoin transactions and accuses it of being a fraud after they raised $100M. 

8–9 March 2023 Silvergate Capital announces plans to liquidate its bank. 

10–12 March 2023 Shares in Signature Bank, one of the main banks to the cryptocurrency industry, drop as much as 32%, leading to its closure by the New York State Department of Financial Services in a bid to prevent the spreading banking crisis. 

20 June 2023 New Zealand-based ethical travel company We Are Bamboo loses millions of dollars on cryptocurrency trading before announcing it was folding and would not be refunding hundreds of customers for their prepaid trips, according to a report from liquidators BDO. 

Collapse of Terra-Luna

In May 2022, the stablecoin TerraUSD fell to US$0.10. This was supposed to be pegged to the US dollar via a complex algorithmic relationship with its support coin Luna. The loss of the peg resulted in Luna falling to almost zero, down from its high of $119.51. The collapse wiped out $45 billion of market capitalization in a week. On 25 May, a proposal was approved to reissue a new Luna cryptocurrency and to decouple from and abandon the devalued UST stablecoin. The new Luna coin lost value in the opening days of being listed on exchanges. 

In the wake of Terra-Luna's collapse, another algorithmic stablecoin, DEI, lost its peg to the dollar and started to collapse. 

Private litigation in the United States

On 7 January 2022, a class-action lawsuit was filed against EthereumMax alleging it to be a pump and dump scheme with media personality Kim Kardashian, former professional boxer Floyd Mayweather Jr., former NBA player Paul Pierce, and other celebrities also being named in the lawsuit for promoting the Ether cryptocurrency on their social media accounts. 

On 18 February, the United States Court of Appeals for the Eleventh Circuit ruled in a lawsuit against Bitconnect that the Securities Act of 1933 extends to targeted solicitation using social media. 

On the same day, a class-action lawsuit was filed against SafeMoon alleging it to also be a pump and dump scheme with professional boxer Jake Paul, musician Nick Carter, rappers Soulja Boy and Lil Yachty, and social media personality Ben Phillips also being named in the lawsuit for promoting the SafeMoon cryptocurrency with misleading information on their social media accounts. 

On 1 April, a class-action lawsuit was filed in Florida against the LGBcoin cryptocurrency company, NASCAR, professional stock car racing driver Brandon Brown, and political commentator Candace Owens alleging that the defendants made false or misleading statements about the LGBcoin and that the founders of the company had engaged in a pump and dump scheme. 

On 13 April, Coinbase received a class-action securities fraud lawsuit from its shareholders for including false and misleading statements and omissions in the registration statement and prospectus of its initial public offering. 

On 13 June, Binance received a class-action lawsuit from more than 2,000 investors accusing the company of false advertising in promoting TerraUSD. 

On 17 June, TerraForm Labs received a class-action lawsuit in the United States alleging the company misled investors in violation of federal and California securities laws in marketing its cryptocurrencies in a manner that resembled securities. 

On 7 July, Celsius Network received a lawsuit from a former cryptocurrency investment manager alleging the company failed to implement adequate risk management strategies or accounting practices to hedge the firm against cryptocurrency price fluctuations and protect its ability to repay its depositors, and that the company was operating an effective Ponzi scheme. 

On 21 July, an ex-Coinbase employee and 2 other men were charged with wire fraud and conspiracy to commit wire fraud. This marked the first time charges were brought to people involving crypto assets. 

Collapse of FTX

In early November, Binance, one of the largest crypto exchanges in the world, announced it would be dissolving its holdings in FTX Token (FTT) with reports that most of FTX liquidity was based in this coin and was very unstable. This resulted in a run on FTX resulting in 90% of all FTT being withdrawn. The price of FTT fell from $22 on 7 November to under $5.00 on 8 November, an 80% drop. Abracadabra.com's stablecoin "magic internet money" (MIM) also briefly lost its peg to the US dollar for the first time since May 2022. This all resulted in a liquidity crisis with the company unable to pay off the withdrawals. On 8 November, rival Binance announced plans to buy the company to save it from collapse. This sent shockwaves through the crypto market and led to a 10% drop in Bitcoin price and a 15% drop in Ether price. The following day, however, Binance immediately withdrew its offer causing Bitcoin and Ether to plummet another 14% and 16%, respectively, to their lowest levels since November 2020. The same day, the SEC and Justice Department launched an investigation into the company. FTX filed for bankruptcy protection on 11 November. 

Characterization as 'bubble'

Further information: Economics of bitcoin

Bitcoin has been characterized as a speculative bubble by eight winners of the Nobel Memorial Prize in Economic Sciences: Paul Krugman, Robert J. Shiller, Joseph Stiglitz, Richard Thaler, James Heckman, Thomas Sargent, Angus Deaton, and Oliver Hart; and by central bank officials including Alan Greenspan, Agust?n Carstens, V?tor Const?ncio, and Nout Wellink. 

The investors Warren Buffett and George Soros have respectively characterized it as a "mirage" and a "bubble", while the business executives Jack Ma and J.P. Morgan Chase CEO Jamie Dimon have called it a "bubble" and a "fraud", respectively. However, Dimon said later he regrets calling Bitcoin a fraud. 

Other notable skeptics are Bill Gates, Microsoft co-founder and philanthropist; Bruce Schneier, cryptographer, computer security expert, and public policy lecturer at Harvard University; and Molly White, author of the Web3 Is Going Just Great website. 

The liquidation of FTX, a Bahamas-based cryptocurrency exchange, began in November 2022. The collapse of FTX, caused by a liquidity crisis of the company's token, FTT, served as the impetus for its bankruptcy. Prior to its collapse, FTX was the third-largest cryptocurrency exchange by volume and had over one million users.

On 2 November 2022, CoinDesk published an article stating that Alameda Research, a trading firm affiliated with FTX and owned by FTX chief executive Sam Bankman-Fried, held a significant amount of FTX's exchange token, FTT. Following the allegations, Binance—a competing cryptocurrency exchange and a prior investor in FTX—announced it would sell its FTT, leading the market price of the token to crash. The move also triggered a spike in withdrawals from FTX, causing the exchange to freeze withdrawals and creating a liquidity crisis. On 8 November, Binance signed an offer to acquire FTX, but then withdrew the offer. On 11 November, FTX, Alameda Research, and over 100 affiliated entities filed for bankruptcy. Bankman-Fried resigned as FTX CEO and was replaced by John J. Ray III. 

The collapse of FTX has had a wide impact on cryptocurrency markets, with comparisons made to the Enron scandal and Madoff investment scandal, and was described by federal prosecutors as "one of the biggest financial frauds in American history." Following the bankruptcy, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries. Bankman-Fried's net worth, estimated at $16 billion prior to the collapse, was reported as having been wiped out, and several institutional investors of FTX wrote off their investment stakes in the company. Some $473 million in funds were later taken from FTX in an "unauthorized transaction". The collapse of FTX has resulted in a ripple effect across the cryptocurrency industry, with the price of Bitcoin falling to its lowest level in two years. 

Anonymous sources cited by the Wall Street Journal 10 November 2022 stated that FTX had lent $10 billion from customers' accounts to fund Alameda Research earlier in 2022, a move forbidden by FTX's terms of service. The same sources stated that Bankman-Fried, Alameda Research CEO Caroline Ellison, and other FTX executives were aware of the decision. 

FTX and its handling of customer funds is under investigation by the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) in the United States; and a criminal investigation by the Royal Bahamas Police Force and the Securities Commission in the Bahamas. Anonymous sources cited by Reuters said that between $1 billion and $2 billion in consumer funds could not be accounted for. 

Background

Sam Bankman-Fried co-founded Alameda Research, a cryptocurrency trading firm, in 2017. In 2019, Bankman-Fried had the idea of starting a cryptocurrency exchange to help bring in revenue to fund Alameda's activities, and founded FTX. Bankman-Fried was the CEO of both companies until he formally stepped down from his position at Alameda in October 2021, promoting traders Caroline Ellison and Sam Trabucco to co-CEOs. Ellison was reported to have a romantic involvement with Bankman-Fried. As of August 2021, Bankman-Fried still owned 90% of Alameda. 

The close relationship and potential conflicts of interest between Alameda and FTX drew scrutiny from the rest of the cryptocurrency industry. Alameda was once the largest trader on FTX, bringing liquidity to the exchange. Between 1 June 2022 and 22 July 2022, Alameda's known wallets were the largest stablecoin depositors and sources of liquidity to all of FTX's known wallet addresses, accounting for 10% of Tether transfers and 30% of USD Coin transfers on the exchange. According to John J. Ray III, Alameda had a "secret exemption" from FTX's auto-liquidation protocol. 

Alameda Research suffered a series of losses in May and June 2022, which anonymous sources told The Wall Street Journal resulted in FTX lending the trading firm more than half of its customer funds, a decision that the sources said FTX CEO Sam Bankman-Fried described as a 'poor judgment call'. This was explicitly forbidden by FTX's terms-of-service. On 12 November 2022, The Wall Street Journal reported that anonymous sources had said that Alameda CEO Caroline Ellison said that she, Bankman-Fried, Gary Wang, and Nishad Singh were aware of that decision. The same was reported on The New York Times on 14 November 2022. FTX used software to conceal the misuse of customer funds. 

In the days leading up to the crisis, CoinDesk reported that Alameda Research held a significant amount of FTT, and that these FTT holdings made up a considerable portion of their assets. CoinDesk reported that there were $5.1 billion worth of FTT tokens in circulation, and that Alameda's balance sheet held $3.66 billion of "unlocked FTT", $2.16 billion of "FTT collateral", and $292 million of "locked FTT". Following months of arguments and disagreements between Changpeng Zhao, the CEO of Binance, and Bankman-Fried, tensions between the two had intensified days before the crisis. Zhao's firm Binance had obtained $2.1 billion in Binance USD and FTT coins in 2021, following a deal in which FTX bought back an equity stake held by Binance in FTX, and in early November 2022 it had 23 million FTT tokens, worth about $529 million at the time. 

Timeline

Binance divestment and proposed acquisition

On 7 November 2022, Zhao announced that Binance had intended to sell its holdings in FTT. The sale of Binance's holdings in FTT, compounded with the low trading volume of FTT and the enmity between Zhao and Bankman-Fried, resulted in the price of the token plummeting. Binance had received FTT from FTX in 2021 during a transaction in which FTX bought back Binance's equity stake in FTX. Zhao cited "recent revelations that came to light" as the motivation for selling FTT. Bloomberg and TechCrunch reported that any sale by Binance would likely have an outsized impact on FTT's price, given the token's low trading volume. The announcement by Zhao of the pending sale and disputes between Zhao and Bankman-Fried on Twitter led to a decline in the price of FTT and other cryptocurrencies, resulting in $6 billion of customer withdrawals from FTX. FTX became unable to meet the demand for further withdrawals, and on 8 November, Bankman-Fried and Zhao jointly announced Binance had entered into a non-binding agreement to purchase FTX to ensure that customers could recover their assets in a timely manner. The deal did not include the sale of FTX.US. Zhao announced on Twitter that the company would complete due diligence soon, adding that all crypto exchanges should avoid using tokens as collateral. He also wrote that he expected FTT to be "highly volatile in the coming days as things develop". On the day of that announcement, FTT lost 80 percent of its value. 

Binance acquisition dropped

On 9 November, Bloomberg called the acquisition of FTX by Binance "unlikely" due to the poor state of FTX's finances. Bloomberg also reported that the United States Securities and Exchange Commission and Commodity Futures Trading Commission were investigating the nature of FTX's connections to Bankman-Fried's other holdings and its handling of client funds. Later that day, the Wall Street Journal reported that Binance would not move forward with the deal to acquire FTX. Binance cited FTX's reported mishandling of customer funds and pending investigations of FTX as the reasons for not pursuing the deal. Bankman-Fried said in a Slack message that FTX had learned through the press about Binance's concerns and decision. 

Collapse and further rescue attempts

On 9 November, FTX's website said that it was not processing withdrawals at that time. Bankman-Fried said that although the firm's assets were worth more than its clients' deposits, it would need funds from outside to meet demand for withdrawals due to a lack of liquidity. Bankman-Fried stated on 9 November that FTX.US, as a separate company, was "not currently impacted" by the crisis. 

On 10 November, Axios reported that FTX approached Kraken for a potential rescue deal. Bankman-Fried made several statements on 10 November, taking responsibility for FTX's failure and indicating that FTX was attempting to raise $10 billion in emergency financing to remain solvent. Bankman-Fried also announced that Alameda Research would cease trading and end operations. FTX's in-house legal and compliance teams had, for the most part, resigned by 10 November. Anonymous sources cited by the Wall Street Journal on 10 November said that Alameda Research owed FTX some $10 billion, as FTX had lent funds placed on the exchange for trading to Alameda so that Alameda could make investments with the money. 

Though Bankman-Fried said that FTX.US customers did not have reason to worry on Twitter on 10 November, employees began attempting to sell assets belonging to the firm on the same day. These assets include stock-clearing company Embed Financial Technologies and the naming rights to FTX Arena. Disagreements emerged between remaining executives, with Bankman-Fried and FTX COO Constance Wang resisting urges from Ryne Miller, a member of FTX US's legal team, to end trading on the exchanges. Bankman-Fried continued to seek funding even as Miller informed other executives that he believed there was a "0%" chance of securing further investment. Miller and other executives asked Bankman-Fried to concede control of FTX US to them, which he resisted. On 11 November, Bankman-Fried announced that he had filed FTX US for bankruptcy along with FTX and Alameda. Bankman-Fried continued to seek capital for FTX after the bankruptcy, and claimed without evidence that a potential backer had emerged soon after the filing. 

On 12 November, anonymous sources cited by the Wall Street Journal said Alameda CEO Caroline Ellison disclosed to other Alameda employees that she, Sam Bankman-Fried, Gary Wang, and Nishad Singh knew that client deposits were transferred from FTX to Alameda. An anonymous source cited by the New York Times on 14 November said the same. Anonymous sources cited by the Wall Street Journal said the funds were used in part to pay back loans Alameda had taken to make investments. On 10 November, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries, FTX Digital Markets Ltd, "and related parties", and provisionally appointed an attorney as liquidator. Japan's Financial Services Agency ordered FTX Japan to suspend some operations. The company's Australian subsidiary was placed under administration. 

On the same day, a team running the FTX Future Fund, a charitable group bankrolled by Bankman-Fried, announced their collective resignations. Future Fund had committed $160 million in charitable grants and investments by 1 September of that year. 

Bankruptcy

On 11 November, FTX, FTX US, Alameda Research, and more than 100 affiliates filed for bankruptcy in Delaware. Anonymous sources cited by the New York Times said that the exchange owes as much as $8 billion. The crypto lender BlockFi, which was affiliated with FTX, announced on 10 November that it was suspending operations as a result of FTX's collapse. Bankman-Fried resigned as CEO and was replaced by John J. Ray III, a corporate restructuring specialist who previously oversaw the liquidation of Enron. As of 12 November, Bankman-Fried told Reuters that he was still in the Bahamas, though other high-ranking FTX employees had begun leaving for Hong Kong, the location of the company's former headquarters, or other locations. Authorities in the Bahamas, including the Royal Bahamas Police Force, questioned Bankman-Fried on 12 November. Despite FTX's bankruptcy, Bankman-Fried continued to attempt to raise money for the firm during the weekend of 12 and 13 November. 

Unauthorized transactions

Late on 11 November, some $473 million in funds were removed from FTX through what Ryne Miller, FTX US's general counsel, characterized as "unauthorized transactions". Miller further announced that FTX and FTX US intended to move remaining funds denominated in cryptocurrency to offline "cold storage". The funds taken from FTX were mostly stablecoins such as Tether, and were quickly exchanged for Ether, a method used by cryptocurrency thieves to thwart attempts to retrieve stolen funds. A person speaking on behalf of FTX in a Telegram chat referred to the "unauthorized transactions" as a "hack" and encouraged users to delete FTX mobile apps as they were compromised. Kraken has since announced its assistance in identifying the perpetrator. On 14 November, Kraken's chief security officer said on Twitter that the firm knew "the identity" of a user who paid transaction fees associated with moving the stolen money through their Kraken account. In an interview with Kelsey Piper published 16 November by Vox, Bankman-Fried blamed an "ex-employee" or malware on a device owned by an ex-employee for the theft. 

Between $1 billion and $2 billion in customer funds reportedly could not be accounted for as of 12 November. The Financial Times reported that FTX's balance sheet shortly before the bankruptcy showed $9 billion in liabilities against $900 million in liquid assets, $5 billion in "less liquid" assets, and $3.2 billion in illiquid private equity investments. American columnist Matt Levine described that among its less liquid assets that "[FTX] relied on to be able to pay out customer balances" were two tokens that "it had just made up", referring to the FTX Token and Serum, a separate cryptocurrency accounted for in the balance sheet. 

Contagion fears and impact on cryptocurrency markets

Cryptocurrencies experienced swings and declines in value as news of FTX's collapse first emerged in early November: Tether dropped below its peg price of $1.00 to $0.97 and Bitcoin sank to its lowest price in two years. Share prices for publicly traded cryptocurrency companies declined. The price of Solana, which was affiliated with Bankman-Fried, declined as well. The crisis at FTX has inspired an increase in withdrawals from other exchanges. A decline in the value of Cronos, the token of exchange Crypto.com, triggered fears of the potential for a collapse similar to that of FTX and spurred withdrawals from the platform. CEO Kris Marszalek provided assurances that the firm was liquid and that it did not use Cronos in a manner similar to the way FTX used FTT. Bloomberg reported that the collapse of FTX exacerbated institutional skepticism of cryptocurrencies as an asset class. 

BlockFi, a cryptocurrency lender, filed for Chapter 11 bankruptcy protection on 28 November; the firm had earlier begun preventing withdrawals. The company disclosed "significant exposure" to FTX on 14 November. Another cryptocurrency lender, Genesis, a subsidiary of Digital Currency Group, halted withdrawals on 16 November. This halt caused Gemini, an exchange owned by the Winklevoss twins, to cease allowing redemptions for clients using a service provided through a partnership with Genesis. Another Digital Currency Group subsidiary, Grayscale, saw the value of its flagship offering, the publicly traded Grayscale Bitcoin Trust, decline by 20% over the two weeks preceding 17 November. Grayscale Bitcoin Trust was trading at a discounted price, 42% below the value of its Bitcoin, as of 14 November. 

Bankruptcy of Silvergate Bank

Silvergate Bank covered colossal losses on the bankruptcy of FTX. On 9 March 2023 Silvergate Bank announced it would wind down its operations and undergo liquidation, in turn creating a domino effect of chain insolvencies. Shortly afterwards, two more banks associated with cryptocurrency failed. On 10 March 2023, Silicon Valley Bank collapsed in the second largest bank failure in United States history and was placed in receivership of the Federal Deposit Insurance Corporation. Two days later, on 12 March 2023, Signature Bank, who catered to operators such as Binance and Celsius Network, collapsed after being closed by the New York State Department of Financial Services after being designated a systemic risk following a run. After SVB's collapse, Signature Bank's collapse was the third largest in United States history. 

Investigations

Lawsuits and legal involvement

Following the collapse of FTX, the Royal Bahamas Police Force launched a criminal investigation into the company. 

Anonymous sources cited by Bloomberg said that the office of the United States Attorney for the Southern District of New York had begun an investigation into FTX's collapse as of 14 November. 

The United States House Committee on Financial Services plans to conduct hearings in December on the collapse of FTX, and committee leaders said they would seek testimony from Bankman-Fried. 

On 15 November 2022, a class-action lawsuit was filed in Miami against Bankman-Fried and several celebrities, including American football quarterback Tom Brady and comedian Larry David, alleging the company engaged in deceptive practices; they are seeking damages. The lawsuit also named Gisele B?ndchen, Steph Curry, Shaquille O'Neal, Udonis Haslem, David Ortiz, Trevor Lawrence, Shohei Ohtani, Naomi Osaka, and Kevin O'Leary. 

On 21 December 2022, both Caroline Ellison (former CEO of Alameda) and Gary Wang (former Chief Technology Officer of FTX) pled guilty to fraud and other charges and were cooperating with federal investigators in criminal case against Sam Bankman-Fried. In the signed agreements Ellison and Wang agreed to "cooperate fully" and "truthfully and completely disclose all information concerning all matters". On 3 January 2023, Bankman-Fried pled not guilty to fraud and other charges, and a trial was set October 2023. 

Impact

Effects on other firms

On 16 November 2022, the cryptocurrency brokerage service Genesis suspended withdrawals following FTX declaring bankruptcy, further affecting the industry. The cryptocurrency exchange company Gemini, owned by Cameron and Tyler Winklevoss, announced that it would be pausing withdrawals on its Earn program, which uses Genesis as a lending partner. 

The exchange token of Crypto.com, Cronos, lost approximately $1 billion in value in November. On 14 November, Crypto.com's CEO assured users that the exchange was functioning as normal. Commenters and customers remained fearful that Crypto.com could experience a collapse similar to FTX. 

Losses by FTX investors and customers

Institutional investors that stand to lose money due to their stakes in FTX include Tiger Global Management, the Ontario Teachers' Pension Plan, SoftBank Group, BlackRock, Lightspeed Venture Partners, Temasek, and Sequoia Capital. Sequoia Capital wrote down its equity in FTX to $0 on 9 November, losing some $214 million. Sequoia released a notice to investors, also published on Twitter, assuring them the firm's stake in FTX represented a small amount of its overall portfolio, and replaced a profile of Bankman-Fried published on the firm's website with a link to the same notice. The Ontario Teachers' Pension Plan released a similar statement. 

BlockFi, a cryptocurrency lender, was reportedly taking steps to file for bankruptcy as of 15 November, having earlier halted withdrawals. The company disclosed "significant exposure" to FTX on 14 November. Another cryptocurrency lender, Genesis, a subsidiary of Digital Currency Group, halted withdrawals on 16 November. This halt caused Gemini to cease allowing redemptions for clients using a service provided through a partnership with Genesis. BlockFi confirmed speculation by filing for Chapter 11 bankruptcy protection in the United States on 28 November. 

Cryptocurrency investment firms with assets still held on FTX after its bankruptcy include Galois Capital and Galaxy Digital. Several public figures also invested in FTX or received compensation for promoting the company. These include former couple Tom Brady and Gisele Bundchen, as well as Shaquille O'Neal, Stephen Curry, and Kevin O'Leary. According to anonymous sources cited by The Information, some venture capital firms are considering lawsuits against Bankman-Fried. 

Anthony Scaramucci, founder of SkyBridge Capital, announced the firm was attempting to buy back a 30% stake in the business owned by FTX. 

Commentary and reactions

Jim Chanos predicted the collapse of FTX would lead to increased scrutiny and regulation of cryptocurrencies. Chanos further criticized the cryptocurrency sector as "designed to extract fees from really unsuspecting investors". Richard Handler, CEO of American financial firm Jefferies Group, tweeted on 10 November that he had attempted to meet with Bankman-Fried in July and again in September as he perceived he was "in over his head". Handler stated that Bankman-Fried did not respond to the emails sent from Jefferies staff sent on Handler's behalf. The sudden collapse of FTX has been compared to the bankruptcy of Lehman Brothers by writers in publications including The New York Times and the Financial Times, with some deeming FTX's collapse as "crypto's Lehman moment". Lawrence Summers acknowledged the comparisons to Lehman and further compared the collapse to the Enron scandal, caused by fraud perpetrated by Enron executives. Rostin Behnam, the Chairman of the Commodity Futures Trading Commission, called for Congress to grant the organization more power to regulate cryptocurrencies. Risk management firm Titan Grey published a primer on the commencement and early motions practice of the FTX chapter 11 case, analyzing issues such as creditor privacy, relief from the automatic stay, proposed differential treatment of customers from other creditors, and others. 

In July 2023, it was announced that T.J. Miller would star as “a character inspired by Bankman-Fried” in Fortun3, “an interactive series … inspired by the collapse of FTX.” 

Impact on effective altruism

The FTX collapse resulted in scrutiny and a loss of funding for the effective altruism movement, which Bankman-Fried had funded using profits from FTX. Some commentators stated that EA's endorsement of ends–means reasoning and longtermism motivated the leaders of FTX to engage in risky and unethical behavior. However, several leaders of the EA movement, including William MacAskill and Robert Wiblin, condemned FTX's actions. 

Prior to the collapse, Bankman-Fried and other senior leaders of FTX and Alameda were altogether worth approximately $16.5 billion, making them the second-largest group of benefactors to the EA movement after Open Philanthropy and Good Ventures. On 10 November, the team running the FTX Future Fund, a charitable group bankrolled by Bankman-Fried, announced that they had resigned earlier that day. Future Fund had committed $160 million in charitable grants and investments by 1 September of that year. 

Terra is a blockchain protocol and payment platform used for algorithmic stablecoins. The project was created in 2018 by Terraform Labs, a startup co-founded by Do Kwon and Daniel Shin. It is most known for its Terra stablecoin and the associated Luna reserve asset cryptocurrency.

In May 2022, the Terra blockchain was temporarily halted after the collapse of the stablecoin TerraUSD (UST) and Luna, in an event that wiped out almost $45 billion in market capitalisation within a week. 

Design

Terra is a blockchain that leverages fiat-pegged stablecoins to power a payment system. For consensus the Terra blockchain uses a proof-of-stake codesign. Several stablecoins are built atop the Terra protocol, including TerraUSD, which was the third largest stablecoin by market capitalisation before its collapse in May 2022. The Terra blockchain has a fully-functional ecosystem of decentralized applications (or DApps), such as Anchor, Mirror, and Pylon, which utilised the stable-coin infrastructure of Terra. 

Terra is a group of algorithmic stablecoins, named according to the currencies to which they are pegged—for example, TerraUSD (UST) is pegged to the U.S. dollar. Luna serves as the primary backing asset for Terra, and is also used as a governance token for users to vote on Terra community proposals. UST stablecoins were not backed by U.S. dollars; instead, it was designed to maintain its peg through a complex model called a "burn and mint equilibrium". This method uses a two-token system, whereby one token is supposed to remain stable (UST) while the other token (LUNA) is meant to absorb volatility. 

The Anchor Protocol was a lending and borrowing protocol built on the Terra chain. Investors who deposited UST in the Anchor Protocol were receiving a 19.45% yield that was paid out from Terra's reserves. Due to such a high-yielding mechanism of the Anchor Protocol, some critics raised concerns that Kwon's stablecoin model could function like a "ginormous Ponzi scheme". Mirror Protocol was another project based on the Terra chain, which designed and offered financial derivatives that virtually "mirrored" actual listed stocks. 

History

In 2018, Do Kwon and Daniel Shin (also known as Shin Hyun-sung ) co-founded Terraform Labs in Seoul, South Korea. In 2019, Terraform Labs launched its first cryptocurrency token. Terraform Labs raised more than $200 million from investment firms such as Arrington Capital, Coinbase Ventures, Galaxy Digital and Lightspeed Venture Partners. 

In January 2022, the Luna Foundation Guard (LFG) was established as a non-profit based in Singapore, with Do Kwon serving as its director. Terraform Labs allocated a portion of the money obtained from UST sales to Luna Foundation Guard, to be used as reserves to stabilise the price of UST. As of 7 May, just before UST broke its peg, LFG held reserves of 80,394 bitcoin worth approximately $2.4 billion. Bitcoin was the largest portion of the reserve assets, though LFG also held reserves in various other stablecoins and cryptocurrencies. 

In February 2022, Terra and the Washington Nationals Major League Baseball team announced they had entered into a sponsorship agreement which provided stadium and television branding, as well as the rebranding of the Washington Nationals club and lounge to the "Terra Club". The deal was originally proposed to the Terra community by Kwon, referring only to an unnamed "sports franchise in one of the four major American professional sports leagues", and the community agreed to pay $38.15 million for a five-year-long exclusive partnership. 

The founders Kwon and Shin each owned one share of Terraform Labs, giving each founder 50% of controlling power. Kwon later enlarged his stock pool to eleven shares, giving him approximately 91.7% ownership and Shin the remaining 8.3%. Shin and Chai Corporation, a Terra-ecosystem payment service company that he founded, announced on 18 May 2022 that Shin no longer held any ownership stock in Terraform Labs. However, after it was revealed from sources of the Singaporean Account and Corporate Regulatory Authority that Shin still held 8.3% of Terraform Labs ownership, Chai Corporation announced that Shin was not able to "finish liquidating his remaining ownership in time" despite having the same share of ownership as of 18 May. The documents from the Singaporean authority also revealed that as of 18 May, Shin held 51.2% of ownership and Kwon 22.4% of Chai Holdings, the parent company of Chai Corporation. 

Collapse

Beginning on 9 May 2022, the tokens made headlines after UST began to break its peg to the US dollar. Over the next week, the price of UST plunged to 10 cents, while Luna fell to "virtually zero", down from an all-time high of $119.51. Before the crash, Luna was one of the top ten largest cryptocurrencies on the market. The collapse wiped out almost $45 billion of market capitalisation over the course of a week. 

On 13 May, Terraform Labs temporarily halted the Terra blockchain in response to the falling prices of UST and Luna. Despite the company's attempts to stabilise UST and Luna via its bitcoin and other cryptocurrency reserves from the Luna Foundation Guard, the 1:1 peg of UST to USD did not materialise. As of 16 May 2022, blockchain analysts claim that the usage of the bitcoin reserves of LFG still remains largely uncertain. 

Likely causes of the collapse included mass withdrawals from the Anchor Protocol days before the collapse, investor concerns about cryptocurrencies more generally, and a drop in the price of bitcoin. During the collapse, holders converted Terra into Luna via the mint-and-burn system, which caused the price of Luna to collapse due to its increased supply. This in turn destabilised the balancing mechanism between the currencies. 

On 25 May, a proposal was approved to reissue a new Luna cryptocurrency and to decouple from and abandon the devalued UST stablecoin. The original blockchain is now called Terra Classic (LUNC), and the original Luna token is called Luna Classic. The new Luna coin is called "Terra 2.0" by investors, and has lost valuation in the opening days of being listed on exchanges. 

In an August 2022 interview on the NFTV series Coinage, which occurred few months following the collapse, Terra founder Do Kwon remarked that his faith in Terra now "seems super irrational". However, he would also deny that the Terra system was a ponzi scheme. 

On 23 March 2023 Kwon attempted travel to Dubai using falsified Costa Rican documents, while also carrying falsified Belgian travel documents, but was intercepted and arrested at Podgorica Airport in Montenegro. A federal grand jury in Manhattan subsequently laid eight charges against Kwon, including securities fraud, commodities fraud, wire fraud and conspiracy. The following month, KBS News reported that Kwon had sent 9 billion won, equaling USD $7 million, to law firm Kim & Chang, prior to the collapse of TerraUSD. 

Licensing and regulatory issues

Terraform Labs Pte. Ltd., the company behind Terra, is incorporated in Singapore but did not submit an application for a licence under the Payment Services Act according to The Straits Times. It is also not a notified entity, meaning it has not been granted temporary exemption from holding a licence by the Monetary Authority of Singapore. According to documents filed by Kwon at the Supreme Court of Korea's Registry Office, Kwon filed to dissolve the company's Korean entity on 30 April 2022, and was granted approval on 4 May 2022. 

The U.S. Securities and Exchange Commission (SEC) issued a subpoena to Terraform Labs and Kwon in 2021, with specific regard to Terraform Labs' Mirror Protocol, which designed and offered financial derivatives that virtually "mirrored" actual listed stocks. Kwon responded by stating that he wouldn't comply with the demands, and instead would be suing the SEC. Despite Kwon's attempts to dispute and avoid investigations from the SEC, a U.S. Court hearing in Manhattan in February 2022 ruled in favour of the SEC's right to continue its investigation into Kwon and Terraform Labs. In February 2023, the SEC charged Terraform Labs and Kwon with fraud. 

On 18 May, the newly appointed Korean Minister of Justice, Han Dong-hoon, enlarged the economic crimes investigation division of the Seoul Southern District Prosecutor's Office, vowing to "track illegal funds and capital transfers, crack down on tax evasion, audit company finances, compile transaction data, and seize the proceeds of criminal financial activity." On its first day of operation, the Financial and Securities Crimes Joint Investigation Team singled out the Luna and Terra crisis as its first investigation target. 

A class action, Patterson v. TerraForm Labs Pte Ltd. et al, was filed against Terraform Labs and others in the United States District Court for the Northern District of California on 17 June 2022. In September 2022, a $56.9 million class action was filed at the High Court of Singapore against Do Kwon, Terraform Labs, Nikolaos Alexandros Platias and the Luna Foundation Guard. 

In June 2022, Yonhap News reported that 15 people, including former Terraform developers for the Anchor lending protocol, had been imposed with travel restrictions by the Korean government. On November 29, 2022 an arrest warrant was issued for Daniel Shin by South Korean prosecutors. 

Dogecoin (Abbreviation: DOGE) is a cryptocurrency created by software engineers Billy Markus and Jackson Palmer, who decided to create a payment system as a "joke", making fun of the wild speculation in cryptocurrencies at the time. It is considered both the first "meme coin", and more specifically the first "dog coin". Despite its satirical nature, some consider it a legitimate investment prospect. Dogecoin features the face of the Shiba Inu dog from the "doge" meme as its logo and namesake. It was introduced on December 6, 2013, and quickly developed its own online community, reaching a peak market capitalization of over $85 billion on May 5, 2021. As of 2021, it is the sleeve sponsor of Watford Football Club. 

Dogecoin.com promotes the currency as the "fun and friendly Internet currency", referencing its origins as a "joke". Software engineers Billy Markus and Jackson Palmer launched the satirical cryptocurrency as a way to make fun of Bitcoin and the many other cryptocurrencies boasting grand plans to take over the world. With the help of Reddit, the site became an instant hit. Within two weeks, Dogecoin had established a dedicated blog and forum, and its market value has reached US$8 million, once jumping to become the seventh largest electronic currency in the world. Dogecoin is based on Scrypt algorithm. 

History

Originally formed as a "joke", Dogecoin was created by IBM software engineer Billy Markus and Adobe software engineer Jackson Palmer. They wanted to create a peer-to-peer digital currency that could reach a broader demographic than Bitcoin. In addition, they wanted to distance it from the controversial history of other coins. Dogecoin was officially launched on December 6, 2013, and within the first 30 days, there were over a million visitors to Dogecoin.com. 

Palmer is credited with making the idea a reality. At the time, he was a member of the Adobe Systems marketing department in Sydney. Palmer had purchased the domain Dogecoin.com and added a splash screen, which featured the coin's logo and scattered Comic Sans text. Markus reached out to Palmer after seeing the site, and started efforts to develop the currency. Markus had designed Dogecoin's protocol based on existing cryptocurrencies Luckycoin and Litecoin, which use scrypt technology in their proof-of-work algorithm. The use of scrypt means that miners cannot use SHA-256 bitcoin mining equipment, and instead must use dedicated FPGA and ASIC devices for mining which are known to be more complex to produce. 

On December 19, 2013, Dogecoin jumped nearly 300% in value in 72 hours, rising from US$0.00026 to US$0.00095, with a volume of billions of Dogecoins per day. This growth occurred during a time when bitcoin and many other cryptocurrencies were reeling from China's decision to forbid Chinese banks from investing into the bitcoin economy. Three days later, Dogecoin experienced its first major crash by dropping by 80% due to this event and to large mining pools exploiting the small amount of computing power required at the time to mine Dogecoin. 

On December 25, 2013, the first major theft of Dogecoin occurred when millions of coins were stolen during a hack on the online cryptocurrency wallet platform Dogewallet. The hacker gained access to the platform's filesystem and modified its send/receive page to send any and all coins to a static address. This hacking incident spiked tweets about Dogecoin, making it the most mentioned altcoin on Twitter at the time, although it was in reference to a negative event. To help those who lost funds on Dogewallet after its breach, the Dogecoin community started an initiative named "SaveDogemas" to help donate coins to those who had them stolen. Approximately one month later, enough money was donated to cover all of the coins that were stolen. 

In January 2014, the trading volume of Dogecoin briefly surpassed that of Bitcoin and all other cryptocurrencies combined. However, its market capitalization remained substantially behind that of Bitcoin. Initially, Dogecoin featured a randomized reward that is received for each mining block. However, in March 2014, this behaviour was later updated to a static block reward. 

Co-founder Jackson Palmer left the cryptocurrency community in 2015 and has no plans to return, having come to the belief that cryptocurrency, originally conceived as a libertarian alternative to money, is fundamentally exploitative and built to enrich its top proponents. His co-founder, Billy Markus, agreed that Palmer's position was generally valid. 

During 2017 to early 2018 cryptocurrency bubble, Dogecoin briefly reached a peak of US$0.017/?1 on January 7, 2018, putting its total market capitalization near US$2 billion.

In July 2020, the price of Dogecoin spiked following a TikTok trend aimed at getting Dogecoin to US$1. 

On May 9, 2021, SpaceX announced a rideshare mission to the Moon completely funded by Dogecoin, thus becoming the first space mission funded by a cryptocurrency. Elon Musk confirmed this news via Twitter. DOGE-1 was planned to be a minor 40 kg rideshare payload on Intuitive Machines' IM-1 mission in Q1 2022. 

On August 14, 2021, the Dogecoin Foundation announced the "re-establishment of the Dogecoin Foundation (est 2014), with a renewed focus on supporting the Dogecoin Ecosystem, Community and promoting the future of the Dogecoin Blockchain." The Foundation was reinvigorated by the addition to its Board of notable advisors such as Vitalik Buterin (Ethereum co-founder and inventor) and Jared Birchall (representing Elon Musk). 

2021 boom and subsequent fall

In January 2021, Dogecoin went up over 800% in 24 hours, attaining a price of US$0.07, as a result of attention from Reddit users, partially encouraged by Elon Musk and the GameStop short squeeze. In February 2021, Dogecoin hit a new high price of US$0.08 following Twitter encouragement from Musk, Snoop Dogg and Gene Simmons. In March 2021, Dallas Mavericks owner Mark Cuban announced his NBA team would allow purchasing tickets and products with Dogecoin; within two days, Cuban had declared his franchise had become the top Dogecoin merchant, having carried out 20,000 transactions. 

In April 2021, Dogecoin and other cryptocurrencies surged, stimulated in part by the direct listing for cryptocurrency exchange Coinbase on April 14, although that platform did not provide trading of Dogecoin. Its price first reached US$0.10 on April 14, before hitting a new high of US$0.45 on April 16 (up 400% that week ), with a volume of nearly US$70 billion traded in the preceding 24 hours. At the time, Dogecoin's market capitalization approached US$50 billion, making it the fifth-highest-valued cryptocurrency; its value had increased more than 7,000% year-to-date. Interest in Dogecoin contributed to an outage in electronic trading platform Robinhood's cryptocurrency system on April 15, caused by "unprecedented demand", and prompted concerns from experts of a nearing speculative bubble in the cryptocurrency market. 

On May 4, 2021, the value of Dogecoin first surpassed the symbolic hurdle of US$0.50. 

In April 2023, there was a price increase for Dogecoin attributed Elon Musk temporarily changing the logo on the Twitter app to a Doge logo. In June 2 2023, Musk was accused of inside trading by investors based on a series of stunts including change of logo. 

Use and exchanges

Dogecoin is an altcoin with a large userbase, and is traded against both fiat currencies and other cryptocurrencies on several reputable cryptocurrency exchanges and retail investment platforms.

Trading physical, tangible items in exchange for DOGE takes place on online communities such as Reddit and Twitter, where users in such circles frequently share cryptocurrency-related information. 

Several cases of people using their employers' or universities' computers to mine Dogecoin have been discovered. 

Dogecoin has also been used in an attempted property sale, it and has been used in the pornography and gambling industries.

Online tipping

One major mainstream commercial application of the cryptocurrency has been Internet-based tipping systems, in which social media users tip other users for providing interesting or noteworthy content. 

Dogetipbot

Dogetipbot was a cryptocurrency transaction service used on popular sites like Reddit and Twitch. It allowed users to send Dogecoins to other users through commands via Reddit comments. In May 2017, Dogetipbot was discontinued and taken offline after its creator declared bankruptcy; this left many Dogetipbot users losing their coins stored in the Dogetipbot system. 

Technology and DeFi

DeFi (decentralized finance) is a form of finance that does not rely on middlemen such as brokerages, exchanges, or banks to offer financial instruments. This is accomplished using "smart contracts" which are automated enforceable agreements that do not need intermediaries like a bank or lawyer, but use online blockchain technology instead. While Dogecoin cannot interact with smart contracts directly given that it operates on its own chain, the coins can be "wrapped" so that they can be locked into a state that is interoperable with a contract until it is later released. The Ren Project has enabled Dogecoin (renDOGE) to be used on the Ethereum blockchain and access the DeFi network. Most DeFi coins use the Ethereum blockchain network. DeFi linked coins use decentralized applications ("dApps") to transact and trade on decentralized exchanges (DExs). An example of a Dexs is Uniswap; these are entirely peer-to-peer exchanges, without any company or other institution providing the platform. 

Currency supply

Dogecoin started with a supply limit of ?100 billion, which would have been far more coins than the top digital currencies were then allowing. By mid-2015, the 100 billionth Dogecoin had been mined, with an additional ?5 billion put into circulation every year thereafter. Although there is no theoretical supply limit, at this rate, the number of Dogecoins put into circulation will only double in 20 years (the next doubling will occur in the year 2075). There is no implemented hard cap on the total supply of Dogecoins. Nonetheless, in February 2014, Dogecoin founder Jackson Palmer announced that the limit would be removed in an effort to create a consistent reduction of its inflation rate over time. In other words, the inflation rate improves over time starting at 5% in 2015 to less than 4% by 2019, 3% by 2027, and 2% by 2035.

Mining parameters

Dogecoin's implementation differs from its predecessors: It was originally forked from Litecoin, then refactored to Bitcoin. Dogecoin's target block time is 1 minute, as opposed to Litecoin's 2.5 minutes and Bitcoin's 10 minutes. 

Fundraising

2014 Winter Olympics

The Dogecoin community and foundation have encouraged fundraising for charities and other notable causes. On January 19, 2014, a fundraiser was established by the Dogecoin community to raise US$50,000 for the Jamaican Bobsled Team, which had qualified for, but could not afford to go to, the Sochi Winter Olympics. By the second day, US$36,000 worth of Dogecoin was donated and the Dogecoin to bitcoin exchange rate rose by 50%. The Dogecoin community also raised funds for a second Sochi athlete, Shiva Keshavan. 

Doge4Water

Inspired by the Winter Olympics fundraiser and smaller charity fundraising successes, the Dogecoin Foundation, led by Eric Nakagawa, began collecting donations to build a well in the Tana river basin in Kenya in cooperation with Charity: Water. They set out to raise a total of ?40,000,000 (US$30,000 at the time) Dogecoin before World Water Day (March 22). The campaign succeeded, collecting donations from more than 4,000 donors, including one anonymous benefactor who donated ?14,000,000 (approx. US$11,000 at the time, or US$2.8m in 2021). 

NASCAR

On March 25, 2014, the Dogecoin community successfully raised ?67.8 million (around US$55,000 at the time) in an effort to sponsor NASCAR Sprint Cup Series driver Josh Wise. Nicknamed the "Moonrocket", the No. 98 car featured a Dogecoin/Reddit-sponsored paint scheme and was driven by Wise at the Aaron's 499 at Talladega Superspeedway. Wise and the car were featured for nearly a minute, during which the race commentators discussed Dogecoin and the crowdfunding effort, while finishing twentieth and narrowly avoiding multiple wrecks. 

On May 16, Wise won a spot at the Sprint All-Star Race through an online fan vote beating Danica Patrick, largely due to the efforts of the Dogecoin Reddit community. He finished the race in fifteenth, the last car running. The following race in the Coca-Cola 600, Wise debuted a Dogecoin/Reddit.com helmet. Wise later announced he would run the car again at the Toyota/Save Mart 350 and the GEICO 500 as a thank-you gift to the community.  He finished twenty-eighth in the race due in part to a refueling issue; he was in twelfth place after a gas-and-go pit stop, but the gas can did not engage long enough, resulting in a second pit stop that took him towards the back of the pack. Eutechnyx, the developer of the NASCAR '14 video game, added the Dogecoin car as a drivable car in a DLC pack. 

On March 2, 2021, NASCAR Xfinity Series team B. J. McLeod Motorsports announced that Dogecoin would be sponsoring the № 99 car in the Alsco Uniforms 300 at Las Vegas alongside Springrates; Stefan Parsons drove the car to a 36th-place finish as fuel line issues prevented him from completing the race. Coincidentally, his father Phil was the owner of the team that fielded the original Dogecoin-sponsored car in 2014.

Criticism

Dogecoin's origin as a "joke", which makes it the first meme coin, has made it difficult to be taken seriously by mainstream media and financial experts. The cryptocurrency has had a long and problematic history of scams. Similar to many other cryptocurrencies, Dogecoin has been described by some commentators as a form of Ponzi scheme. Critics allege that Dogecoin investors who purchased Dogecoins early on, have a large financial incentive to draw others into purchasing more Dogecoins in order to drive the price up, therefore benefitting the early investors financially at the direct expense of later purchasers. This is primarily because Dogecoin does not have a supply cap like other cryptocurrencies such as Bitcoin, which has a capped supply of 21 million coins. Dogecoin has instead a deliberately stable, "deterministic inflation" rate of ?10,000 per block, with a block time of one minute. Exactly ?5 billion in new Dogecoins will be created and enter circulation every year. 

Positives

While the price of Dogecoin is volatile, this volatility has its benefits. It allows investors to use strategies such as cryptocurrency day trading or scalping to profit from fast, short-lived price swings. Additionally, while the cryptocurrency may have begun as a "joke", it was the 10th-largest cryptocurrency in the world in September 2021, with a market capitalisation of US$26 billion. Larger coins included Bitcoin, Ethereum, Cardano, Binance Coin, Tether, and XRP. Mark Cuban has stated of Dogecoin that, "Doge has 'deterministic inflation' meaning the amount of inflation is defined. There is no uncertainty as to the amount of created and it's inflation percentage. Which could allow it to grow as a valid payment mechanism. The unknown is whether enough people will use it this way." 

Elon Musk and Dogecoin

Elon Musk frequently uses his Twitter platform to express his views on Dogecoin, which has led some to claim that his actions amount to market manipulation because the price of Dogecoin frequently experiences price movements shortly after Dogecoin-related tweets released by Elon Musk. Nevertheless, because cryptocurrencies are not regulated like stocks, these actions are not illegal. Musk and his promotion of Dogecoin have been criticized by Dogecoin co-founder Jackson Palmer, who called Musk a "self-absorbed grifter". 

Musk's first Dogecoin-related tweet occurred on December 20, 2020. Musk tweeted "One Word: Doge". Shortly after, the value of Dogecoin rose by 20%. 

This was followed by a series of Dogecoin-related tweets by Musk in early February 2021 captioned "Dogecoin is the people's crypto" and "no highs, no lows, only Doge". Following these tweets, the value of Dogecoin rose by roughly 40%. 

On April 15, 2021, the price of Dogecoin rose by more than 100% after Musk tweeted an image of Joan Mir?'s Dog Barking at the Moon painting captioned "Doge Barking at the Moon", a message whch was taken by some as a reference to the industry slang term "to the moon", meaning a hoped-for increase in a cryptocurrency's value. 

On May 8, 2021, Dogecoin fell as much as 29.5%, dropping to US$0.49 during Musk’s Saturday Night Live appearance. 

The price of Dogecoin rose by 11% on May 20, 2021, shortly after Musk tweeted a Doge-related meme. 

In May 2021, the price of Dogecoin was up 10% in the hours after Musk tweeted a Reddit link for users to submit proposals to improve the cryptocurrency. 

On December 14, 2021, Dogecoin spiked more than 20% after Musk said that Tesla will accept the currency as a means of payment for Tesla merchandise. 

On June 16, 2022, Elon Musk was named in a complaint seeking damages of $258 billion. The complaint was filed in federal court in Manhattan by plaintiff Keith Johnson. Johnson cited Musk's repeated use of his massive social influence to promote the altcoin, which he claims artificially inflated the price. 

On October 27, 2022, Elon Musk completed a deal to take Twitter private for $44 billion. This led to a sustained rise in Dogecoin from the 25th to the 29th, with the highest increase of 45.51%. It was reported back in 2013 that Musk thinks dogecoin can be used for Twitter transactions. 

Between April 3 and April 7, 2023, Twitter's bird logo was replaced with an image of the Doge meme for desktop users, leading to a rise in Dogecoin prices. No reason was given for the icon change, with some speculating that it was a late April Fool's joke, or an attempt to troll investors over the Dogecoin lawsuit that Musk was seeking to end that week. 

Elon Reeve Musk (born June 28, 1971) is a business magnate and investor. He is the founder, chairman, CEO, and chief technology officer of SpaceX; angel investor, CEO and product architect of Tesla, Inc.; owner and CTO of Twitter; founder of the Boring Company; co-founder of Neuralink and OpenAI; and president of the Musk Foundation. Musk is the wealthiest person in the world with an estimated net worth of US$239 billion as of July 2023, according to the Bloomberg Billionaires Index, and $248.8 billion according to Forbes's Real Time Billionaires list, primarily from his ownership stakes in Tesla and SpaceX. 

Musk was born in Pretoria, South Africa, and briefly attended the University of Pretoria before moving to Canada at age 18, acquiring citizenship through his Canadian-born mother. Two years later, he matriculated at Queen's University in Kingston, Ontario, and two years after that transferred to the University of Pennsylvania, where he received bachelor's degrees in economics and physics. He moved to California in 1995 to attend Stanford University. After two days, he dropped out and, with his brother Kimbal, co-founded the online city guide software company Zip2. The startup was acquired by Compaq for $307 million in 1999, and with $12 million of the money he made, that same year Musk co-founded X.com, a direct bank. X.com merged with Confinity in 2000 to form PayPal.

In 2002, eBay acquired PayPal for $1.5 billion, and that same year, with $100 million of the money he made, Musk founded SpaceX, a spaceflight services company. In 2004, he was an early investor in the electric vehicle manufacturer Tesla Motors, Inc. (now Tesla, Inc.). He became its chairman and product architect, assuming the position of CEO in 2008. In 2006, he helped create SolarCity, a solar energy company that was acquired by Tesla in 2016 and became Tesla Energy. In 2013, Musk proposed a hyperloop high-speed vactrain transportation system. In 2015, he co-founded OpenAI, a nonprofit artificial intelligence research company. The following year, he co-founded Neuralink—a neurotechnology company developing brain–computer interfaces—and the Boring Company, a tunnel construction company. In 2022, his acquisition of Twitter for $44 billion was completed. In 2023, Musk founded xAI, an artificial intelligence company.

Musk has expressed views that have made him a polarizing figure. He has been criticized for making unscientific and misleading statements, including that of spreading COVID-19 misinformation, and promoting conspiracy theories. In 2018, the U.S. Securities and Exchange Commission (SEC) sued Musk for falsely tweeting that he had secured funding for a private takeover of Tesla. To settle the case, Musk stepped down as chairman of Tesla and paid a $20 million fine.

Early life

Childhood and family

Elon Reeve Musk was born on June 28, 1971, in Pretoria, one of South Africa's capital cities. Musk has British and Pennsylvania Dutch ancestry. His mother is Maye Musk (n?e Haldeman), a model and dietitian born in Saskatchewan, Canada, and raised in South Africa. His father, Errol Musk, is a South African electromechanical engineer, pilot, sailor, consultant, and property developer, who partly owned a Zambian emerald mine near Lake Tanganyika. Musk has a younger brother, Kimbal, and a younger sister, Tosca. 

Musk's family was wealthy during his youth. His father was elected to the Pretoria City Council as a representative of the anti-apartheid Progressive Party and has said that his children shared their father's dislike of apartheid. His maternal grandfather, Joshua Haldeman, was an American-born Canadian who took his family on record-breaking journeys to Africa and Australia in a single-engine Bellanca airplane. After his parents divorced in 1980, Musk chose to mostly live with his father. Musk regretted his decision and has become estranged from his father. He has a paternal half-sister and a half-brother. 

Maye Musk has said of her son that he "was shy and awkward at school" and "didn't have many friends". At age ten, he developed an interest in computing and video games, teaching himself how to program from the VIC-20 user manual. At age twelve, he sold his BASIC-based game Blastar to PC and Office Technology magazine for approximately $500. 

Education

Musk attended Waterkloof House Preparatory School, Bryanston High School, and Pretoria Boys High School, from where he graduated. Musk applied for a Canadian passport through his Canadian-born mother, knowing that it would be easier to immigrate to the United States this way. While waiting for his application to be processed, he attended the University of Pretoria for five months. 

Musk arrived in Canada in June 1989 and lived with a second cousin in Saskatchewan for a year, working odd jobs at a farm and lumber mill. In 1990, he entered Queen's University in Kingston, Ontario. Two years later, he transferred to the University of Pennsylvania (UPenn), where he completed studies for a Bachelor of Arts degree in physics and a Bachelor of Science degree in economics from the Wharton School. Although Musk claims he earned the degrees in 1995, UPenn maintains it awarded them in 1997. He reportedly hosted large, ticketed house parties to help pay for tuition, and wrote a business plan for an electronic book-scanning service similar to Google Books. 

In 1994, Musk held two internships in Silicon Valley: one at energy storage startup Pinnacle Research Institute, which investigated electrolytic ultracapacitors for energy storage, and another at Palo Alto–based startup Rocket Science Games. In 1995, he was accepted to a PhD program in materials science at Stanford University. However, Musk decided to join the Internet boom, instead dropping out two days after being accepted and applied for a job at Netscape, to which he reportedly never received a response. 

Business career

Zip2

In 1995, Musk, his brother Kimbal, and Greg Kouri founded Zip2. Errol Musk provided them with $28,000 in funding. The company developed an Internet city guide with maps, directions, and yellow pages, and marketed it to newspapers. They worked at a small rented office in Palo Alto, Musk coding the website every night. Eventually, Zip2 obtained contracts with The New York Times and the Chicago Tribune. The brothers persuaded the board of directors to abandon a merger with CitySearch; however, Musk's attempts to become CEO were thwarted. Compaq acquired Zip2 for $307 million in cash in February 1999, and Musk received $22 million for his 7-percent share. 

X.com and PayPal

Later in 1999, Musk co-founded X.com, an online financial services and e-mail payment company with $12 million of the money he made from the Compaq acquisition. X.com was one of the first federally insured online banks, and over 200,000 customers joined in its initial months of operation. Even though Musk founded the company, investors regarded him as inexperienced and replaced him with Intuit CEO Bill Harris by the end of the year. 

In 2000, X.com merged with online bank Confinity to avoid competition, as Confinity's money-transfer service PayPal was more popular than X.com's service. Musk then returned as CEO of the merged company. His preference for Microsoft over Unix-based software caused a rift among the company's employees, and led Peter Thiel, Confinity's founder, to resign. With the company suffering from compounding technological issues and the lack of a cohesive business model, the board ousted Musk and replaced him with Thiel in September 2000. Under Thiel, the company focused on the money-transfer service and was renamed PayPal in 2001. 

In 2002, PayPal was acquired by eBay for $1.5 billion in stock, of which Musk—the largest shareholder with 11.72% of shares—received $175.8 million. In 2017, more than 15 years later, Musk purchased the X.com domain from PayPal for its "sentimental value". In 2022, Musk discussed a goal of creating "X, the everything app". 

SpaceX

In early 2001, Musk became involved with the nonprofit Mars Society and discussed funding plans to place a growth-chamber for plants on Mars. In October of the same year, he traveled to Moscow with Jim Cantrell and Adeo Ressi to buy refurbished intercontinental ballistic missiles (ICBMs) that could send the greenhouse payloads into space. He met with the companies NPO Lavochkin and Kosmotras; however, Musk was seen as a novice and the group returned to the United States empty-handed. In February 2002, the group returned to Russia with Mike Griffin (president of In-Q-Tel) to look for three ICBMs. They had another meeting with Kosmotras and were offered one rocket for $8 million, which Musk rejected. He instead decided to start a company that could build affordable rockets. With $100 million of his own money, Musk founded SpaceX in May 2002 and became the company's CEO and Chief Engineer. 

SpaceX attempted its first launch of the Falcon 1 rocket in 2006. Though the rocket failed to reach Earth orbit, it was awarded a Commercial Orbital Transportation Services program contract from NASA Administrator (and former SpaceX consultant ) Mike Griffin later that year. After two more failed attempts that nearly caused Musk and his companies to go bankrupt, SpaceX succeeded in launching the Falcon 1 into orbit in 2008. Later that year, SpaceX received a $1.6 billion Commercial Resupply Services contract from NASA for 12 flights of its Falcon 9 rocket and Dragon spacecraft to the International Space Station, replacing the Space Shuttle after its 2011 retirement. In 2012, the Dragon vehicle docked with the ISS, a first for a commercial spacecraft. 

Working towards its goal of reusable rockets, in 2015 SpaceX successfully landed the first stage of a Falcon 9 on an inland platform. Later landings were achieved on autonomous spaceport drone ships, an ocean-based recovery platform. In 2018, SpaceX launched the Falcon Heavy; the inaugural mission carried Musk's personal Tesla Roadster as a dummy payload. Since 2019, SpaceX has been developing Starship, a fully-reusable, super-heavy-lift launch vehicle intended to replace the Falcon 9 and the Falcon Heavy. In 2020, SpaceX launched its first crewed flight, the Demo-2, becoming the first private company to place astronauts into orbit and dock a crewed spacecraft with the ISS. 

Starlink

In 2015, SpaceX began development of the Starlink constellation of low-Earth-orbit satellites to provide satellite Internet access, with the first two prototype satellites launched in February 2018. A second set of test satellites, and the first large deployment of a piece of the constellation, occurred in May 2019, when the first 60 operational satellites were launched. The total cost of the decade-long project to design, build, and deploy the constellation is estimated by SpaceX to be about $10 billion. Some critics, including the International Astronomical Union, have alleged that Starlink blocks the view of the sky and poses a collision threat to spacecraft. 

During the Russian invasion of Ukraine, Musk sent Starlink terminals to Ukraine to provide Internet access and communication. However, Musk refused to block Russian state media on Starlink, declaring himself "a free speech absolutist". In October 2022, Musk stated that about 20,000 satellite terminals had been donated to Ukraine, together with free data transfer subscriptions, which cost SpaceX $80 million. After asking the United States Department of Defense to pay for further units and future subscriptions on behalf of Ukraine, Musk publicly stated that SpaceX would continue to provide Starlink to Ukraine for free, at a yearly cost to itself of $400 million. 

Tesla

Tesla, Inc.—originally Tesla Motors—was incorporated in July 2003 by Martin Eberhard and Marc Tarpenning, who financed the company until the Series A round of funding. Both men played active roles in the company's early development prior to Musk's involvement. Musk led the Series A round of investment in February 2004; he invested $6.5 million, became the majority shareholder, and joined Tesla's board of directors as chairman. Musk took an active role within the company and oversaw Roadster product design but was not deeply involved in day-to-day business operations. 

Following a series of escalating conflicts in 2007, and the financial crisis of 2007–2008, Eberhard was ousted from the firm. Musk assumed leadership of the company as CEO and product architect in 2008. A 2009 lawsuit settlement with Eberhard designated Musk as a Tesla co-founder, along with Tarpenning and two others. As of 2019, Musk was the longest-tenured CEO of any automotive manufacturer globally. In 2021, Musk nominally changed his title to "Technoking" while retaining his position as CEO. 

Tesla began delivery of an electric sports car, the Roadster, in 2008. With sales of about 2,500 vehicles, it was the first serial production all-electric car to use lithium-ion battery cells. Tesla began delivery of its four-door Model S sedan in 2012. A cross-over, the Model X was launched in 2015. A mass-market sedan, the Model 3, was released in 2017. The Model 3 is the all-time bestselling plug-in electric car worldwide, and in June 2021 it became the first electric car to sell 1 million units globally. A fifth vehicle, the Model Y crossover, was launched in 2020. The Cybertruck, an all-electric pickup truck, was unveiled in 2019. Under Musk, Tesla has also constructed multiple lithium-ion battery and electric vehicle factories, named Gigafactories. 

Since its initial public offering in 2010, Tesla stock has risen significantly; it became the most valuable carmaker in summer 2020, and it entered the S&P 500 later that year. In October 2021, it reached a market capitalization of $1 trillion, the sixth company in U.S. history to do so. In November 2021, Musk proposed, on Twitter, to sell 10% of his Tesla stock, since "much is made lately of unrealized gains being a means of tax avoidance". After more than 3.5 million Twitter accounts supported the sale, Musk sold $6.9 billion of Tesla stock within a week, and a total of $16.4 billion by year end, reaching the 10% target. In February 2022, The Wall Street Journal reported that both Elon and Kimbal Musk were under investigation by the SEC for possible insider trading related to the sale. In 2022, Musk unveiled a robot developed by Tesla, Optimus. On June 20, 2023, Musk met with Indian Prime Minister Narendra Modi in New York City, suggesting that he might be interested in investing in India "as soon as humanly possible". 

SEC and shareholder lawsuits regarding tweets

In 2018, Musk was sued by the SEC for a tweet claiming that funding had been secured for potentially taking Tesla private. The lawsuit characterized the tweet as false, misleading, and damaging to investors, and sought to bar Musk from serving as CEO of publicly traded companies. Two days later, Musk settled with the SEC, without admitting or denying the SEC's allegations. As a result, Musk and Tesla were fined $20 million each, and Musk was forced to step down for three years as Tesla chairman but was able to remain as CEO. Musk has stated in interviews that he does not regret posting the tweet that triggered the SEC investigation. In April 2022, the shareholder who sued Musk over the tweet, along with several Tesla shareholders, said that a federal judge had ruled that the tweet was false, although the ruling in question has not been unsealed. In February 2023, the jury found Musk and Tesla not liable. 

In 2019, Musk stated in a tweet that Tesla would build half a million cars that year. The SEC reacted to Musk's tweet by filing in court, asking the court to hold him in contempt for violating the terms of a settlement agreement with such a tweet; the accusation was disputed by Musk. This was eventually settled by a joint agreement between Musk and the SEC clarifying the previous agreement details. The agreement included a list of topics that Musk would need preclearance before tweeting about. In 2020, a judge prevented a lawsuit from proceeding that claimed a tweet by Musk regarding Tesla stock price ("too high imo") violated the agreement. FOIA-released records showed that the SEC itself concluded Musk has subsequently violated the agreement twice by tweeting regarding "Tesla's solar roof production volumes and its stock price". 

SolarCity and Tesla Energy

Musk provided the initial concept and financial capital for SolarCity, which his cousins Lyndon and Peter Rive founded in 2006. By 2013, SolarCity was the second largest provider of solar power systems in the United States. In 2014, Musk promoted the idea of SolarCity building an advanced production facility in Buffalo, New York, triple the size of the largest solar plant in the United States. Construction of the factory started in 2014 and was completed in 2017. It operated as a joint venture with Panasonic until early 2020. 

Tesla acquired SolarCity for over $2 billion in 2016 and merged it with its battery unit to create Tesla Energy. The deal's announcement resulted in a more than 10% drop in Tesla's stock price. At the time, SolarCity was facing liquidity issues. Multiple shareholder groups filed a lawsuit against Musk and Tesla's directors, claiming that the purchase of SolarCity was done solely to benefit Musk and came at the expense of Tesla and its shareholders. Tesla directors settled the lawsuit in January 2020, leaving Musk the sole remaining defendant. Two years later, the court ruled in Musk's favor. 

Neuralink

In 2016, Musk co-founded Neuralink, a neurotechnology startup company, with an investment of $100 million. Neuralink aims to integrate the human brain with artificial intelligence (AI) by creating devices that are embedded in the brain to facilitate its merging with machines. Such technology could enhance memory or allow the devices to communicate with software. The company also hopes to develop devices with which to treat neurological conditions such as Alzheimer's disease, dementia, and spinal cord injuries. 

In 2019, Musk announced work on a device akin to a sewing machine that could embed threads into a human brain. Musk is listed as the sole author of an October 2019 paper that details some of Neuralink's research, although Musk's being listed as such rankled the Neuralink team's researchers. At a 2020 live demonstration, Musk described one of their early devices as "a Fitbit in your skull" that could soon cure paralysis, deafness, blindness, and other disabilities. Many neuroscientists and publications criticized these claims, with MIT Technology Review describing them as "highly speculative" and "neuroscience theater". During the demonstration, Musk revealed a pig with a Neuralink implant that tracked neural activity related to smell. In 2022, Neuralink announced that clinical trials would begin by the end of the year. 

Neuralink has conducted further animal testing on macaque monkeys at the University of California, Davis' Primate Research Center. In 2021, the company released a video in which a Macaque played the video game Pong via a Neuralink implant. The company's animal trials—which have caused the deaths of some monkeys—have led to claims of animal cruelty. The Physicians Committee for Responsible Medicine has alleged that Neuralink's animal trials have violated the Animal Welfare Act. Employees have complained that pressure from Musk to accelerate development has led to botched experiments and unnecessary animal deaths. In 2022, a federal probe was launched into possible animal welfare violations by Neuralink. 

The Boring Company

In 2017, Musk founded the Boring Company to construct tunnels, and revealed plans for specialized, underground, high-occupancy vehicles that could travel up to 150 miles per hour (240 km/h) and thus circumvent above-ground traffic in major cities. Early in 2017, the company began discussions with regulatory bodies and initiated construction of a 30-foot (9.1 m) wide, 50-foot (15 m) long, and 15-foot (4.6 m) deep "test trench" on the premises of SpaceX's offices, as that required no permits. The Los Angeles tunnel, less than two miles (3.2 km) in length, debuted to journalists in 2018. It used Tesla Model Xs and was reported to be a rough ride while traveling at suboptimal speeds. 

Two tunnel projects announced in 2018, in Chicago and West Los Angeles, have been canceled. However, a tunnel beneath the Las Vegas Convention Center was completed in early 2021. Local officials have approved further expansions of the tunnel system. In 2021, tunnel construction was approved for Fort Lauderdale, Florida. 

Twitter

Musk expressed interest in buying Twitter as early as 2017, and had previously questioned the platform's commitment to freedom of speech. In January 2022, Musk started purchasing Twitter shares, reaching a 9.2% stake by April, making him the largest shareholder. When this was publicly disclosed, Twitter shares experienced the largest intraday price surge since the company's 2013 IPO. On April 4, Musk agreed to a deal that would appoint him to Twitter's board of directors and prohibit him from acquiring more than 14.9% of the company. However, on April 13, Musk made a $43 billion offer to buy Twitter, launching a takeover bid to buy 100% of Twitter's stock at $54.20 per share. In response, Twitter's board adopted a "poison pill" shareholder rights plan to make it more expensive for any single investor to own more than 15% of the company without board approval. Nevertheless, by the end of the month Musk had successfully concluded his bid for approximately $44 billion. This included about $12.5 billion in loans against his Tesla stock and $21 billion in equity financing. 

Tesla's stock market value sank by over $100 billion the next day in reaction to the deal, causing Musk to lose around $30 billion of his net worth. He subsequently tweeted criticism of Twitter executive Vijaya Gadde's policies to his 86 million followers, which led to some of them engaging in sexist and racist harassment against her. Exactly a month after announcing the takeover, Musk stated that the deal was "on hold" following a report that 5% of Twitter's daily active users were spam accounts, causing Twitter shares to drop more than 10 percent. Although he initially affirmed his commitment to the acquisition, he sent notification of his termination of the deal in July; Twitter's Board of Directors responded that they were committed to holding him to the transaction. On July 12, 2022, Twitter formally sued Musk in the Chancery Court of Delaware for breaching a legally binding agreement to purchase Twitter. In October 2022, Musk reversed again, offering to purchase Twitter at $54.20 per share. The acquisition was officially completed on October 27. 

Immediately after the acquisition, Musk fired several top Twitter executives including CEO Parag Agrawal; Musk became the CEO instead. He instituted a $7.99 monthly subscription for a "blue check", and laid off a significant portion of the company's staff. Musk lessened content moderation, and in December, Musk released internal documents relating to Twitter's moderation of Hunter Biden's laptop controversy in the leadup to the 2020 presidential election. The Southern Poverty Law Center noted that Twitter has verified numerous extremists, and a study of millions of tweets following the acquisition indicated that hate speech on the platform has become "more visible" under Musk's leadership. 

Within the first weeks of ownership, Musk made a series of decisions and changes that he quickly reversed, including the paid blue checkmark, creating an "official" label and forbidding linking to one's profiles on other social media platforms. Under Musk's management, Twitter experienced several large scale outages. 

In April 2022, The Washington Post reported that Musk privately claimed that supposed censorship on the platform, including the banning of accounts such as The Babylon Bee, had prompted him to begin the acquisition. The New York Post revealed that Musk's ex-wife Talulah Riley had encouraged Musk to purchase Twitter, specifically citing the Bee's ban. Following the acquisition, he made reinstatement of accounts like the Bee an immediate priority. 

On December 18, Musk posted a poll to his Twitter account asking users to decide whether he should step down as the head of Twitter, with 57.5% out of the more than 17.5 million votes supporting that decision. Musk then announced that he would resign as CEO "as soon as I find someone foolish enough to take the job". 

On May 11, 2023, Musk announced that he would be stepping down from the CEO position and instead moving to "exec chair & CTO, overseeing product, software & sysops" and announced the new CEO, former NBCUniversal executive Linda Yaccarino. 

xAI

On July 12, 2023, Elon Musk launched an AI company called xAI, which aims to develop a generative AI program that competes with existing offerings like ChatGPT. The company has hired engineers from Google and OpenAI. 

Leadership style

Musk is often described as a micromanager and has called himself a "nano-manager". The New York Times has characterized his approach as absolutist. Musk does not make formal business plans; instead, he says he prefers to approach engineering problems with an "iterative design methodology" and "tolerance for failures". He has forced employees to adopt the company's own jargon and launched ambitious, risky, and costly projects against his advisors' recommendations, such as removing front-facing radar from Tesla Autopilot. His insistence on vertical integration causes his companies to move most production in-house. While this resulted in saved costs for SpaceX's rocket, vertical integration has caused many usability problems for Tesla's software. 

Musk's handling of employees—whom he communicates with directly through mass emails—has been characterized as "carrot and stick", rewarding those "who offer constructive criticism" while also being known to impulsively threaten, swear at, and fire his employees. Musk said he expects his employees to work for long hours, sometimes for 80 hours per week. He has his new employees sign strict non-disclosure agreements and often fires in sprees, such as during the Model 3 "production hell" in 2018. In 2022, Musk revealed plans to fire 10 percent of Tesla's workforce, due to his concerns about the economy. That same month, he suspended remote work at SpaceX and Tesla and threatened to fire employees who do not work 40 hours per week in the office. 

Musk's leadership has been praised by some, who credit it with the success of Tesla and his other endeavors, and criticized by others, who see him as callous and his managerial decisions as "showing a lack of human understanding." The 2021 book Power Play contains anecdotes of Musk berating employees. The Wall Street Journal reported that, after Musk insisted on branding his vehicles as "self-driving", he faced criticism from his engineers for putting customer "lives at risk", with some employees resigning in consequence. 

Other activities

Musk Foundation

Musk is president of the Musk Foundation he founded in 2001, whose stated purpose is to provide solar-power energy systems in disaster areas; support research, development, and advocacy (for interests including human space exploration, pediatrics, renewable energy and "safe artificial intelligence"); and support science and engineering educational efforts. From 2002 to 2018, the foundation gave $25 million directly to non-profit organizations, nearly half of which went to Musk's OpenAI, which was a non-profit at the time. 

Since 2002, the foundation has made over 350 donations. Around half of them were made to scientific research or education nonprofits. Notable beneficiaries include the Wikimedia Foundation, his alma mater the University of Pennsylvania, and his brother Kimbal's Big Green. In 2012, Musk took the Giving Pledge, thereby committing to give the majority of his wealth to charitable causes either during his lifetime or in his will. He has endowed prizes at the X Prize Foundation, including $100 million to reward improved carbon capture technology. 

Vox said "the Musk Foundation is almost entertaining in its simplicity and yet is strikingly opaque", noting that its website was only 33 words in plain-text. The foundation has been criticized for the relatively small amount of wealth donated. In 2020, Forbes gave Musk a philanthropy score of 1, because he had given away less than 1% of his net worth. In November 2021, Musk donated $5.7 billion of Tesla's shares to charity, according to regulatory filings; however, Bloomberg News noted that all of it went to his own foundation, bringing Musk Foundation's assets up to $9.4 billion at the end of 2021. The foundation disbursed $160 million to non-profits that year. 

Hyperloop

In 2013, Musk announced plans for a version of a vactrain—a vacuum tube train—and assigned a dozen engineers from SpaceX and Tesla to establish the conceptual foundations and create initial designs. Later that year, Musk unveiled the concept, which he dubbed the hyperloop. The alpha design for the system was published in a whitepaper posted to the Tesla and SpaceX blogs. The document scoped out the technology and outlined a notional route where such a transport system could be built between the Greater Los Angeles Area and the San Francisco Bay Area, at an estimated cost of $6 billion. The proposal, if technologically feasible at the costs cited, would make Hyperloop travel cheaper than any other mode of transport for such long distances. 

In 2015, Musk announced a design competition for students and others to build Hyperloop pods, to operate on a SpaceX-sponsored mile-long track, for a 2015–2017 Hyperloop pod competition. The track was used in January 2017, and Musk also announced that the company started a tunnel project, with Hawthorne Municipal Airport as its destination. In July 2017, Musk claimed that he had received "verbal government approval" to build a hyperloop from New York City to Washington, D.C., with stops in both Philadelphia and Baltimore. Mention of the projected DC-to-Baltimore leg was removed from the Boring Company website in 2021. The tunnel project to Hawthorne was discontinued in 2022 and is cited to be converted into parking spots for SpaceX workers. 

Biographer Ashlee Vance has noted that Musk hoped Hyperloop would "make the public and legislators rethink the high-speed train" proposal current in California at the time and consider more "creative" ideas. 

OpenAI

In 2015, Musk co-founded OpenAI, a not-for-profit artificial intelligence (AI) research company aiming to develop artificial general intelligence intended to be safe and beneficial to humanity. A particular focus of the company is to democratize artificial superintelligence systems, against governments and corporations. Musk pledged $1 billion of funding to OpenAI. In 2023, Musk tweeted that he had ended up giving a total of $100 million to OpenAI. TechCrunch later reported that, according to its own investigation of public records, "only $15 million" of OpenAI's funding could be definitively traced to Musk. Musk subsequently stated that he had donated about $50 million. 

In 2018, Musk left the OpenAI board to avoid possible future conflicts with his role as CEO of Tesla as the latter company increasingly became involved in AI through Tesla Autopilot. Since then, OpenAI has made significant advances in machine learning, producing neural networks such as GPT-3 (producing human-like text), and DALL-E (generating digital images from natural language descriptions). 

Tham Luang cave rescue and defamation case

In July 2018, Musk arranged for his employees to build a mini-submarine to assist the rescue of children trapped in a flooded cavern in Thailand. Richard Stanton, leader of the international rescue diving team, urged Musk to facilitate the construction of the vehicle as a back-up, in case flooding worsened. Engineers at SpaceX and the Boring Company built the mini-submarine from a Falcon 9 liquid oxygen transfer tube in eight hours and personally delivered it to Thailand. By this time, however, eight of the 12 children, had already been rescued, the rescuers employing full face masks, oxygen, and anesthesia; consequently, Thai authorities declined to use the submarine. In March 2019, Musk was later one of the 187 people who received various honors conferred by the King of Thailand for involvement in the rescue effort. 

Soon after the rescue, Vernon Unsworth, a British recreational caver who had been exploring the cave for the previous six years and played a key advisory role in the operation, criticized the submarine on CNN as amounting to nothing more than a public relations effort with no chance of success, maintaining that Musk "had no conception of what the cave passage was like" and "can stick his submarine where it hurts". Musk asserted on Twitter that the device would have worked and referred to Unsworth as a "pedo guy". He deleted the tweets, and apologized, and he deleted his responses to critical tweets from Cher Scarlett, a software engineer, which had caused his followers to harass her. In an email to BuzzFeed News, Musk later called Unsworth a "child rapist" and said that he had married a child. 

In September, Unsworth filed a defamation suit in the District Court for the Central District of California. In his defense, Musk argued that "'pedo guy' was a common insult used in South Africa when I was growing up ... synonymous with 'creepy old man' and is used to insult a person's appearance and demeanor". The defamation case began in December 2019, with Unsworth seeking $190 million in damages. During the trial Musk apologized to Unsworth again for the tweet. On December 6, the jury found in favor of Musk and ruled he was not liable. 

2018 Joe Rogan podcast appearance

In 2018, Musk appeared on The Joe Rogan Experience podcast and discussed various topics for over two hours. During the interview, Musk sampled a puff from a cigar consisting, the host claimed, of tobacco laced with cannabis. Tesla stock dropped after the incident, which coincided with the confirmation of the departure of Tesla's vice president of worldwide finance earlier that day. Fortune wondered if the cannabis use could have ramifications for SpaceX contracts with the United States Air Force, though an Air Force spokesperson told The Verge that there was no investigation and that the Air Force was still determining the facts. In 2022, Musk claimed that he and other Space-X employees were subjected to random drug tests for about a year following the incident. In a 60 Minutes interview, Musk said of the incident: "I do not smoke pot. As anybody who watched that podcast could tell, I have no idea how to smoke pot." 

Music

In 2019, Musk, through Emo G Records, released a rap track, "RIP Harambe", on SoundCloud. The track, which refers to the killing of Harambe the gorilla and the subsequent Internet sensationalism surrounding the event, was performed by Yung Jake, written by Yung Jake and Caroline Polachek, and produced by BloodPop. The following year, Musk released an EDM track, "Don't Doubt Ur Vibe", featuring his own lyrics and vocals. While Guardian critic Alexi Petridis described it as "indistinguishable... from umpteen competent but unthrilling bits of bedroom electronica posted elsewhere on Soundcloud", TechCrunch said it was "not a bad representation of the genre". 

Private jet

In 2003, Musk said his favorite plane he owned was an L-39 Albatros. He uses a private jet owned by Falcon Landing LLC, a SpaceX-linked company, and acquired a second jet in August 2020. His heavy use of the jet—it flew over 150,000 miles in 2018—and the consequent fossil fuel usage has received criticism. 

His flight usage is tracked on social media through ElonJet. The Twitter version of the account was blocked in December 2022, after Musk claimed that his son X AE A-XII had been harassed by a stalker after the account posted the airport at which his jet had landed. This led to Musk banning the ElonJet account on Twitter, as well as the accounts of journalists that posted stories regarding the incident, including Donie O'Sullivan, Keith Olbermann, and journalists from The New York Times, The Washington Post, CNN, and The Intercept. Musk equated the reporting to doxxing. The police do not believe there is a link between the account and alleged stalker. Musk later took a Twitter poll on whether the journalists' accounts should be reinstated, which resulted in reinstating the accounts. 

Wealth

Net worth

Musk made $175.8 million when PayPal was sold to eBay in 2002. He was first listed on the Forbes Billionaires List in 2012, with a net worth of $2 billion. 

At the start of 2020, Musk had a net worth of $27 billion. By the end of the year his net worth had increased by $150 billion, mostly driven by his ownership of around 20% of Tesla stock. During this period, Musk's net worth was often volatile. For example, it dropped $16.3 billion in September, the largest single-day plunge in Bloomberg Billionaires Index's history. In November of that year, Musk passed Facebook co-founder Mark Zuckerberg to become the third-richest person in the world; a week later he passed Microsoft co-founder Bill Gates to become the second-richest. 

In January 2021, Musk, with a net worth of $185 billion, surpassed Amazon founder Jeff Bezos to become the richest person in the world. Bezos reclaimed the top spot the following month. On September 27, 2021, after Tesla stock surged, Forbes announced that Musk had a net worth of over $200 billion, and was the richest person in the world. In November 2021, Musk became the first person to have a net worth of more than $300 billion. 

On December 30, 2022, it was reported that Musk had lost $200 billion from his net worth due to declining stock values in Tesla, becoming the first person in history to lose such a large sum of money. In January 2023, Musk was recognized by Guinness World Records for experiencing the "largest loss of personal fortune in history" with regards to his financial losses since November 2021, which Guinness quoted a Forbes estimate of $182 billion. 

Musk's personal wealth is managed by his family office called Excession LLC, which was formed in 2016 and run by Jared Birchall. 

Sources of wealth

Around 75% of Musk's wealth derived from Tesla stock in November 2020, a proportion that fell to about 37% as of December 2022, after selling nearly $40 billion in company shares since late 2021. Musk does not receive a salary from Tesla; he agreed with the board in 2018 to a compensation plan that ties his personal earnings to Tesla's valuation and revenue. The deal stipulated that Musk only receives the compensation if Tesla reaches certain market values. It was the largest such deal ever done between a CEO and a company board. In the first award, given in May 2020, he was eligible to purchase 1.69 million Tesla shares (about 1% of the company) at below-market prices, which was worth about $800 million. 

Musk paid $455 million in taxes on $1.52 billion of income between 2014 and 2018. According to ProPublica, Musk paid no federal income taxes in 2018. He claimed his 2021 tax bill was estimated at $12 billion based on his sale of $14 billion worth of Tesla stock. 

Musk has repeatedly described himself as "cash poor", and has "professed to have little interest in the material trappings of wealth". In May 2020, he pledged to sell almost all physical possessions. Musk has defended his wealth by saying he is accumulating resources for humanity's outward expansion to space. 

Personal views and Twitter usage

Since joining Twitter in 2009, Musk has been an active user and has over 100 million followers as of June 2022. He posts memes, promotes business interests, and comments on contemporary political and cultural issues. Musk's statements have provoked controversy, such as for mocking preferred gender pronouns, and comparing Canadian prime minister Justin Trudeau to Adolf Hitler. The New York Times describes his contributions to international relations as "chaotic", and critics of Musk argue that there is a lack of separation between his opinions and his business interests. As CEO of Twitter, Musk emerged as a source of misinformation, for example by suggesting online details about mass murderer Mauricio Garcia's apparent interest in Nazism could have been planted as part of a psyop. Allegations of him being transphobic appeared as well in response to actions taken by Twitter under his guidance. The Israel government and several media outlets accused Musk of antisemitism due to him spreading George Soros conspiracy theories, although some Israeli officials defended Musk. 

Existential threats

Musk has been described as believing in longtermism, emphasizing the needs of future populations. Accordingly, Musk has stated that artificial intelligence poses the greatest existential threat to humanity. He has warned of a "Terminator-like" AI apocalypse and suggested that the government should regulate its safe development. In 2015, Musk was a cosignatory, along with Stephen Hawking and hundreds of others, of the Open Letter on Artificial Intelligence, which called for the ban of autonomous weapons. Musk's AI stances have been called alarmist and sensationalist by critics such as computer scientist Yann LeCun and Meta CEO Mark Zuckerberg, and led the think tank Information Technology and Innovation Foundation to award Musk its Annual Luddite Award in 2016. 

Musk has described climate change as the greatest threat to humanity after AI, and has advocated for a carbon tax. Musk was a critic of President Donald Trump's stance on climate change, and resigned from two presidential business advisory councils following Trump's 2017 decision to withdraw the United States from the Paris Agreement. 

Musk has long promoted the colonization of Mars and argues that humanity should become a "multiplanetary species". He has suggested the use of nuclear weapons to terraform Mars. He envisioned establishing a direct democracy on Mars, with a system in which more votes would be required to create laws than remove them. Musk has also voiced concerns about human population decline, saying that "Mars has zero human population. We need a lot of people to become a multiplanet civilization." Speaking at The Wall Street Journal's CEO Council session in 2021, Musk stated that a declining birth rate, and consequent population decline, is one of the biggest risks to human civilization. 

Politics

While often described as libertarian, Musk has called himself "politically moderate" and was a registered independent voter when he lived in California. The New York Times wrote that Musk "expresses views that don't fit neatly into the American binary, left-right political framework". Historically, Musk has donated to both Democrats and Republicans, many of whom are in states in which he has a vested interest. Beginning in the late 2010s, Musk's political contributions have shifted to almost entirely supporting Republicans. 

Musk voted for Hillary Clinton in the 2016 U.S. presidential election. In the 2020 Democratic Party presidential primaries, Musk endorsed candidate Andrew Yang and expressed support for his proposed universal basic income. He also endorsed Kanye West's 2020 presidential campaign. He said he voted for Joe Biden in the 2020 U.S. presidential election. In 2022, Musk said that he could "no longer support" the Democrats because they are the "party of division & hate", and wrote a tweet encouraging "independent-minded voters" to vote Republican in the 2022 U.S. elections, which was an outlier among social media executives who typically avoid partisan political advocacy. He openly supported Republican Ron DeSantis for the 2024 U.S. presidential election by hosting DeSantis's announcement on a Twitter Spaces event. 

Musk opposes a "billionaire's tax", and has argued on Twitter with more left-leaning Democratic politicians such as Bernie Sanders, Alexandria Ocasio-Cortez, and Elizabeth Warren. He has raised questions about the Black Lives Matter protests, partially based on the fact that the phrase "Hands up, don't shoot" was made up. Musk also promoted a baseless theory relating to the attack of Speaker Nancy Pelosi's husband, but Musk deleted his tweet. 

Musk has praised China and has been described as having a close relationship with the Chinese government, allowing access to its markets for Tesla. After Gigafactory Shanghai produced its first batch of vehicles, Musk thanked the Chinese government and Chinese people while criticizing the United States and its people. :?207–208? In 2022, Musk wrote an article for China Cyberspace, the official publication of Cyberspace Administration of China, which enforces Internet censorship in China. His writing the article was described as conflicting with his advocacy for free speech. Musk later advocated for Taiwan to become a "special administrative zone" of China which drew cross-party criticism from Taiwanese lawmakers. In October 2022, Musk posted a Twitter poll and "peace plan" to resolve the Russian invasion of Ukraine. It was reported that Musk allegedly spoke with Russian President Vladimir Putin prior to the proposal, which Musk denied. 

COVID-19

Musk was criticized for his public comments and conduct related to the COVID-19 pandemic. He spread misinformation about the virus, including promoting a widely discredited paper on the benefits of chloroquine and claiming that COVID-19 death statistics were inflated. 

In March 2020, Musk stated, "The coronavirus panic is dumb." In an email to Tesla employees, Musk referred to COVID-19 as a "specific form of the common cold" and predicted that confirmed COVID-19 cases would not exceed 0.1% of the U.S. population. On March 19, 2020, Musk predicted that there would be "probably close to zero new cases in the U.S. by end of April". Politico labeled this statement one of "the most audacious, confident, and spectacularly incorrect prognostications of 2020". Musk also claimed falsely that children "are essentially immune" to COVID-19. 

Musk condemned COVID-19 lockdowns and initially refused to close the Tesla Fremont Factory in March 2020, defying the local shelter-in-place order. In May 2020, he reopened the Tesla factory, defying the local stay-at-home order, and warned workers that they would be unpaid, and their unemployment benefits might be jeopardized, if they did not report to work. In December 2022, Musk called for prosecution of former National Institute of Allergy and Infectious Diseases director Anthony Fauci. 

In March 2020, Musk promised that Tesla would make ventilators for COVID-19 patients if there were a shortage. After figures like New York City mayor Bill de Blasio responded to Musk's offer, Musk offered to donate ventilators which Tesla would build or buy from a third party. However, Musk ended up buying and donating BiPAP and CPAP machines, which are non-invasive ventilators, rather than the much more expensive and sought-after invasive mechanical ventilator machines. 

In September 2020, Musk stated that he would not get the COVID-19 vaccine, because he and his children were "not at risk for COVID". Two months later, Musk contracted COVID-19 and suggested his COVID-19 rapid antigen test results were dubious, after which the phrase "Space Karen" trended on Twitter, in reference to Musk. However, in December 2021, Musk revealed that he and his eligible children had received the vaccine. 

Finance

Musk said that the U.S. government should not provide subsidies to companies, but impose a carbon tax to discourage poor behavior. The free market, in his view, would achieve the best solution, and producing environmentally unfriendly vehicles should have consequences. Tesla has received billions of dollars in subsidies. In addition, Tesla made large sums from government-initiated systems of zero-emissions credits offered in California and at the United States federal level, which facilitated initial consumer adoption of Tesla vehicles, as the tax credits given by governments enabled Tesla's battery electric vehicles to be price-competitive, in comparison with existing lower-priced internal combustion engine vehicles. Notably, Tesla generates some of its revenue from its sales of carbon credits granted to the company, by both the European Union Emissions Trading System and the Chinese national carbon trading scheme. 

Musk, a longtime opponent of short-selling, has repeatedly criticized the practice and argued it should be illegal. Wired magazine speculated that Musk's opposition to short-selling stems from how short sellers have an incentive to find and promote unfavorable information about his companies. In early 2021, he encouraged the GameStop short squeeze. 

In December 2022, Musk sold $3.6 billion of his stock in Tesla, equal to 22 million shares in the company, despite pledging earlier in the year that he would not sell any additional shares. 

Technology

Musk has promoted cryptocurrencies and supports them over traditional government-issued fiat currencies. Given the influence of Musk's tweets in moving cryptocurrency markets, his statements about cryptocurrencies have been viewed as market manipulation by some, such as economist Nouriel Roubini. Musk's social media praising of Bitcoin and Dogecoin was credited for increasing their prices. Consequently, Tesla's 2021 announcement, against the backdrop of Musk's social media behavior, that it bought $1.5 billion worth of Bitcoin, raised questions. Tesla's announcement that it would accept Bitcoin for payment was criticized by environmentalists and investors, due to the environmental impact of cryptocurrency mining. A few months later, in response to the criticism, Musk announced on Twitter that Tesla would no longer accept payments in Bitcoin and would not engage in any Bitcoin transactions until the environmental issues are solved. 

Despite the Boring Company's involvement in building mass transit infrastructure, Musk has criticized public transport and promoted individualized transport (private vehicles). His comments have been called "elitist" and have sparked widespread criticism from both transportation and urban planning experts, who have pointed out that public transportation in dense urban areas is more economical, more energy efficient, and requires much less space than private cars. 

Personal life

From the early 2000s until late 2020, Musk resided in California, where both Tesla and SpaceX were founded. In 2020, he moved to Texas, saying that California had become "complacent" about its economic success. While hosting Saturday Night Live in May 2021, Musk revealed that he has Asperger syndrome. Musk is also a practitioner of Brazilian jiu-jitsu. 

Relationships and children

Musk met his first wife, Canadian author Justine Wilson, while attending Queen's University in Ontario, Canada; and they married in 2000. In 2002, their first child died of sudden infant death syndrome at the age of 10 weeks. After his death, the couple decided to use IVF to continue their family. They had twins in 2004 followed by triplets in 2006. The couple divorced in 2008 and shared custody of their children. In 2022, one of the twins officially changed her name to reflect her gender identity as a trans woman, and to use Wilson as her last name because she no longer wished to be associated with Musk. Musk blamed the estrangement of his daughter on what the Financial Times characterized as "the supposed takeover of elite schools and universities by neo-Marxists." 

In 2008, Musk began dating English actress Talulah Riley. They married two years later at Dornoch Cathedral in Scotland. In 2012, the couple divorced, before remarrying the following year. After briefly filing for divorce in 2014, Musk finalized a second divorce from Riley in 2016. Musk then dated Amber Heard for several months in 2017; he had reportedly been pursuing her since 2012. Johnny Depp later accused Musk of having an affair with Heard while she was still married to Depp. Musk and Heard both denied the affair. 

In 2018, Musk and Canadian musician Grimes revealed that they were dating. Grimes gave birth to their son in May 2020. According to Musk and Grimes, his name was "X ? A-12" (/?ks ?? e? ?tw?lv/); however, the name would have violated California regulations as it contained characters that are not in the modern English alphabet, and was then changed to "X ? A-Xii". This drew more confusion, as ? is not a letter in the modern English alphabet. The child was eventually named X AE A-XII Musk, with "X" as a first name, "AE A-XII" as a middle name, and "Musk" as surname. In December 2021, Grimes and Musk had a second child, a daughter named Exa Dark Sider?l Musk (nicknamed "Y"), born via surrogacy. Despite the pregnancy, Musk confirmed reports that the couple were "semi-separated" in September 2021; in an interview with Time in December 2021, he said he was single. In March 2022, Grimes said of her relationship with Musk: "I would probably refer to him as my boyfriend, but we're very fluid." Later that month, Grimes tweeted that she and Musk had broken up again but remained on good terms. 

In July 2022, Insider published court documents revealing that Musk had had twins with Shivon Zilis, director of operations and special projects at Neuralink, in November 2021. They were born weeks before Musk and Grimes had their second child via surrogate in December. The news "raise questions about workplace ethics", given that Zilis directly reported to Musk. Also in July 2022, The Wall Street Journal reported that Musk allegedly had an affair with Nicole Shanahan, the wife of Google co-founder Sergey Brin, in 2021, leading to their divorce the following year. Musk denied the report. 

Legal matters

In May 2022, Business Insider cited an anonymous friend of an unnamed SpaceX contract flight attendant, alleging that Musk engaged in sexual misconduct in 2016. The source stated that in November 2018, Musk, SpaceX, and the former flight attendant entered into a severance agreement granting the attendant a $250,000 payment in exchange for a promise not to sue over the claims. Musk responded, "If I were inclined to engage in sexual harassment, this is unlikely to be the first time in my entire 30-year career that it comes to light". He accused the article from Business Insider of being a "politically motivated hit piece". After the release of the Business Insider article, Tesla's stock fell by more than 6%, decreasing Musk's net worth by $10 billion. Barron's wrote "...some investors considered key-man risk – the danger that a company could be badly hurt by the loss of one individual." 

In April 2023, the government of the US Virgin Islands sought to subpoena Musk for documents in a lawsuit alleging that JPMorgan Chase profited from Jeffrey Epstein's sex trafficking operation. In May, a judge granted the US Virgin Islands' request to serve Musk electronically through Tesla after the U.S. territory had difficulty locating him. The efforts to subpoena Musk for documents do not implicate him in any wrongdoing and do not seek to have Musk testify under oath. 

Public perception

Though Musk's ventures were influential within their own industries in the 2000s, Musk only became a public figure in the early 2010s. He is often described as an eccentric who makes spontaneous and controversial statements, contrary to other billionaires who prefer reclusiveness to protect their businesses. Celebrated by fans and hated by critics, Musk was described by Vance as having become very polarizing because of his "part philosopher, part troll" role on Twitter. 

With Steve Jobs and Donald Trump, Musk served as inspiration for the characterization of Tony Stark in the Marvel film Iron Man (2008). Musk had a cameo appearance in the 2010 sequel, Iron Man 2. Musk has made cameos and appearances in other films such as Machete Kills (2013), Why Him? (2016), and Men in Black: International (2019). Television series in which he has appeared include The Simpsons ("The Musk Who Fell to Earth", 2015), The Big Bang Theory ("The Platonic Permutation", 2015), South Park ("Members Only", 2016), Young Sheldon ("A Patch, a Modem, and a Zantac®", 2017), Rick and Morty ("One Crew over the Crewcoo's Morty", 2019), and Saturday Night Live (2021). He contributed interviews to the documentaries Racing Extinction (2015) and the Werner Herzog-directed Lo and Behold (2016). 

Musk was elected a Fellow of the Royal Society (FRS) in 2018. In 2015, he received an honorary doctorate in engineering and technology from Yale University and IEEE Honorary Membership. Awards for his contributions to the development of the Falcon rockets include the American Institute of Aeronautics and Astronautics George Low Transportation Award in 2008, the F?d?ration A?ronautique Internationale Gold Space Medal in 2010, and the Royal Aeronautical Society Gold Medal in 2012. He was listed among Time magazine's 100 Most Influential People in 2010, 2013, 2018, and 2021. Musk was selected as Time's "Person of the Year" for 2021. Time editor-in-chief Edward Felsenthal wrote that "Person of the Year is a marker of influence, and few individuals have had more influence than Musk on life on Earth, and potentially life off Earth too". In 2022, Musk was elected as a member of the National Academy of Engineering.