IDEAS home Printed from https://ideas.repec.org/a/mbr/jmonec/v11y2016i3p245-265.html
   My bibliography  Save this article

Crypto Currencies and the Blockchain Technology: An Evolutionary Review of Money and the Payment Systems

Author

Listed:
  • Jalali-Naini, Seyed Ahmad Reza

    (Institute for Management and Planning Studies)

  • Rabie Hamedani, Hasti

    (Monetary and Banking Research Institute)

Abstract

In this paper we utilize the main findings from the recent literature to set the economic foundation for the existence of money, its modern interpretation as "memory" (Chokerlakota 1998) and how the Blockchain technology has empowered crypto currencies to perform this role in the information age. To locate the issue in a historical perspective and in line with this strand of thought, we consider direct and indirect exchange and the Wicksell triangle and discuss the frictions under which the need for fiat money arises. More specifically, it will be argued when "reputation" (trust) is imperfect, high cost of enforcing contracts undermines the case for pure private money (credit). The corner stones of the present system, a remnant of 20th century central banks' fiat money and "private money" issued by the banking system and the current payment system relies primarily on the technologies and centralized "trust" protocols developed before the early 1990s. The internet and the digital technology have greatly reduced the costs of gathering and storing information and thus is able to compete with the traditional payment system in the future in the niche markets. In this connection, how the Blockchain technology can complement internet technology for creation of crypto currency for payments, money transfers and asset purchases will be discussed. Finally, the paper examines whether crypto currencies can replace money in its current form. It will be shown that in the case of crypto currencies, high price volatility undermines the store of value function of money and this factor plus issues pertaining to money laundering and taxation prevents them to become a widespread form of money, though they will be used as a medium of exchange in the niche markets.

Suggested Citation

  • Jalali-Naini, Seyed Ahmad Reza & Rabie Hamedani, Hasti, 2016. "Crypto Currencies and the Blockchain Technology: An Evolutionary Review of Money and the Payment Systems," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 11(3), pages 245-265, July.
  • Handle: RePEc:mbr:jmonec:v:11:y:2016:i:3:p:245-265
    as

    Download full text from publisher

    File URL: http://jme.mbri.ac.ir/article-1-268-en.pdf
    Download Restriction: no

    File URL: http://jme.mbri.ac.ir/article-1-268-en.html
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    2. repec:rnp:ecopol:09111 is not listed on IDEAS
    3. Gabriele Camera & Marco Casari, 2014. "The Coordination Value of Monetary Exchange: Experimental Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 290-314, February.
    4. Quinn, Stephen, 1997. "Goldsmith-Banking: Mutual Acceptance and Interbanker Clearing in Restoration London," Explorations in Economic History, Elsevier, vol. 34(4), pages 411-432, October.
    5. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    6. David Andolfatto, 2018. "Blockchain: What It Is, What It Does, and Why You Probably Don’t Need One," Review, Federal Reserve Bank of St. Louis, vol. 100(2).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hanna Halaburda & Guillaume Haeringer & Joshua Gans & Neil Gandal, 2022. "The Microeconomics of Cryptocurrencies," Journal of Economic Literature, American Economic Association, vol. 60(3), pages 971-1013, September.
    2. Venky Venkateswaran & Randall Wright, 2014. "Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity," NBER Macroeconomics Annual, University of Chicago Press, vol. 28(1), pages 227-270.
    3. Janet Hua Jiang & Peter Norman & Daniela Puzzello & Bruno Sultanum & Randall Wright, 2024. "Is Money Essential? An Experimental Approach," Journal of Political Economy, University of Chicago Press, vol. 132(9), pages 2972-2998.
    4. Bigoni, Maria & Camera, Gabriele & Casari, Marco, 2020. "Money is more than memory," Journal of Monetary Economics, Elsevier, vol. 110(C), pages 99-115.
    5. Guilherme Carmona, 2021. "On the optimality of monetary trading," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(3), pages 1121-1160, April.
    6. Camera, Gabriele & Gioffré, Alessandro, 2014. "Game-theoretic foundations of monetary equilibrium," Journal of Monetary Economics, Elsevier, vol. 63(C), pages 51-63.
    7. Chao Gu & Cyril Monnet & Ed Nosal & Randall Wright, 2019. "On the Instability of Banking and Financial Intermediation," Working Papers 1901, Department of Economics, University of Missouri.
    8. Hyndman, Kyle & Müller, Rudolf, 2020. "The role of incentives in dynamic favour exchange: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 83-96.
    9. Davis, Douglas & Korenok, Oleg & Norman, Peter & Sultanum, Bruno & Wright, Randall, 2022. "Playing with money," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1221-1239.
    10. He, Ping & Huang, Lixin & Wright, Randall, 2008. "Money, banking, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1013-1024, September.
    11. Luis Araujo & Bernardo Guimaraes, 2017. "A Coordination Approach to the Essentiality of Money," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 14-24, March.
    12. Gabriele Camera & Dror Goldberg & Avi WeissBar-Ilan, 2020. "Endogenous Market Formation and Monetary Trade: An Experiment," Journal of the European Economic Association, European Economic Association, vol. 18(3), pages 1553-1588.
    13. Sussman, Nathan, 2019. "The Financial Development of London in the 17th Century Revisited: A View from the Accounts of the Corporation of London," CEPR Discussion Papers 13920, C.E.P.R. Discussion Papers.
    14. Gabriele Camera, 2016. "A Perspective on Electronic Alternatives to Traditional Currencies," Working Papers 16-32, Chapman University, Economic Science Institute.
    15. Maria Bigoni & Gabriele Camera & Marco Casari, 2019. "Partners or Strangers? Cooperation, Monetary Trade, and the Choice of Scale of Interaction," American Economic Journal: Microeconomics, American Economic Association, vol. 11(2), pages 195-227, May.
    16. Joakim Book, 2021. "The mystery of Modern Monetary Theory," Economic Affairs, Wiley Blackwell, vol. 41(1), pages 162-174, February.
    17. Maria Bigoni & Gabriele Camera & Marco Casari, 2019. "Cooperation among strangers with and without a monetary system," Working Papers 19-01, Chapman University, Economic Science Institute.
    18. Tölö, Eero, 2019. "Predicting systemic financial crises with recurrent neural networks," Bank of Finland Research Discussion Papers 14/2019, Bank of Finland.
    19. Berentsen, Aleksander & Huber, Samuel & Marchesiani, Alessandro, 2016. "The societal benefit of a financial transaction tax," European Economic Review, Elsevier, vol. 89(C), pages 303-323.
    20. Jean-Louis Combes & Alexandru Minea & Pegdéwendé Nestor Sawadogo, 2019. "Assessing the effects of combating illicit financial flows on domestic tax revenue mobilization in developing countries," CERDI Working papers halshs-02019073, HAL.

    More about this item

    Keywords

    Cryptocurrency; Money; Payment Systems; Blockchain; Return volatility;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mbr:jmonec:v:11:y:2016:i:3:p:245-265. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: M. E. The email address of this maintainer does not seem to be valid anymore. Please ask M. E. to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/mbcbiir.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.