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Literature review - Cryptocurrencies and Virtual Currencies 

מאת    [ 25/06/2023 ]

מילים במאמר: 2348   [ נצפה 347 פעמים ]


Cryptocurrencies, typified by Bitcoin, have revolutionized the financial landscape by offering a decentralized form of digital money that operates independently of a central bank. The genesis of this technological phenomenon dates back to 2008 with the publication of the Bitcoin white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" by an anonymous individual or group known as Satoshi Nakamoto. This seminal document introduced the world to a novel consensus algorithm known as blockchain, which underpins the operation of Bitcoin and countless other digital currencies that have since followed.

The Bitcoin white paper presented a mechanism for addressing the 'double-spending problem', a critical issue in digital cash that prevents the same digital token from being spent more than once. Nakamoto's solution was a peer-to-peer network that records transactions on a public ledger known as the blockchain. This invention sparked a digital revolution, creating a whole new field of technological and economic research while simultaneously challenging the traditional concepts of currency and monetary exchange.

The Bitcoin model, which has been replicated and modified by many subsequent cryptocurrencies, operates independently of any central authority, providing a level of financial freedom previously unseen. However, it also raised many questions regarding its functionality, sustainability, and legal implications, among other issues. This disruption led to a vast body of academic literature on cryptocurrencies and blockchain technology, providing a multitude of perspectives on these groundbreaking innovations.

The following literature review will delve into significant academic articles in this field, addressing various aspects of cryptocurrencies such as their nature, market dynamics, the technology that powers them, and their implications on governance and legal frameworks. It is a comprehensive exploration of how cryptocurrencies and blockchain technology have evolved over time and the challenges and opportunities they present.

The Nature of Cryptocurrency

A fundamental question explored in cryptocurrency research pertains to its very nature: is cryptocurrency a legitimate form of currency? Early analyses, such as David Yermack's "Is Bitcoin a Real Currency? An Economic Appraisal", considered the economic characteristics of Bitcoin, highlighting that it bore more resemblance to a speculative investment than a stable currency. Yermack noted that, as of 2015, Bitcoin lacked the fundamental attributes of a traditional fiat currency: it wasn't a stable store of value, seldom used as a unit of account, and its efficiency as a medium of exchange was questionable due to its significant price volatility.

This position was also echoed in Florian Glaser et al.'s "Bitcoin - Asset or Currency? Revealing Users' Hidden Intentions", which used empirical data to suggest that most users were not utilizing Bitcoin as a medium for transactions but rather as an investment vehicle. They attributed this to Bitcoin's immense volatility, which discouraged its use for everyday transactions.

These works hint at an identity crisis for cryptocurrencies, with Bitcoin and its counterparts embodying characteristics of both commodities and currencies. Such an identity crisis complicates the development of appropriate regulatory and policy responses and can potentially affect market dynamics.

Andrew Urquhart, in "The Inefficiency of Bitcoin", also points to the market inefficiency of Bitcoin as a detractor from its utility as a currency. Urquhart's study demonstrated a lack of weak-form efficiency in Bitcoin, meaning that its future price movements could be somewhat predicted by its past price movements. This inefficiency results from Bitcoin's high volatility and its susceptibility to speculative trading and hoarding behaviors.

The technical underpinning of Bitcoin, the blockchain, however, provides a decentralized, tamper-resistant ledger that allows for peer-to-peer transactions without the need for a trusted third party. This innovative attribute of Bitcoin has been instrumental in its growth and the subsequent emergence of other cryptocurrencies.

However, Bitcoin and other cryptocurrencies have demonstrated a significant lack of price stability compared to traditional fiat currencies. The speculative nature of these digital assets and the frenzy around them have often resulted in enormous price swings, which detract from their use as a stable store of value or medium of exchange.

The unique nature of cryptocurrencies, situated somewhere between a traditional currency and a speculative asset, requires us to rethink existing economic frameworks. More research is needed to fully understand the implications of this new form of asset on global finance, economic stability, and regulatory policies. It also prompts us to reassess our very understanding of what a currency is and can be in this increasingly digital world.

Blockchain Technology and Smart Contracts

While the focus of cryptocurrency discussions often revolves around Bitcoin and its market implications, it's the underlying technology, blockchain, that has truly transformative potential. Blockchain technology, a type of distributed ledger technology (DLT), allows for secure, transparent, and tamper-proof storage of transaction data across a decentralized network. Its significance extends far beyond cryptocurrencies and has the potential to disrupt various sectors including finance, supply chain, and healthcare.

Cong and He, in "Blockchain Disruption and Smart Contracts", discuss the potential of blockchain technology to revolutionize traditional business and financial systems. Through the concept of smart contracts—self-executing contracts with terms of agreement directly written into code—blockchain could automate complex transactions without the need for intermediaries. This automation could, in theory, reduce costs, enhance efficiency, and increase transparency. For instance, smart contracts could automatically execute financial trades when certain conditions are met, eliminating the need for brokers and reducing transaction time.

Furthering the transformative narrative, Campbell R. Harvey in "Cryptofinance" proposes a novel framework for understanding blockchain’s disruptive potential in the finance industry. The blockchain, Harvey argues, can facilitate faster, more secure, and cheaper transactions. It can also make it possible to tokenize virtually any asset, opening up a wide array of investment opportunities and democratizing access to capital.

Moreover, in "Blockchain Technology and Decentralized Governance: Is the State Still Necessary?", Marcella Atzori discusses blockchain's potential political implications. She suggests that blockchain could lead to a decentralization of governance, as the technology allows for direct peer-to-peer interactions, reducing the need for intermediaries or centralized institutions. This argument extends blockchain’s impact beyond just economics, suggesting it could reshape our political and social structures as well.

However, while the potential of blockchain technology and smart contracts is vast, it is not without challenges. Issues related to scalability, interoperability, and legal recognition of smart contracts are still subjects of ongoing research and debate. Despite these challenges, blockchain technology has undeniably opened up new paradigms in both economic and societal structures, the full impact of which we are only beginning to understand.

Cryptocurrency Markets

The advent of cryptocurrencies has led to the creation of an entirely new market, whose dynamics are distinct from those of traditional financial markets. Griffin and Shams, in "Is Bitcoin Really Un-Tethered?", present evidence of potential market manipulation within the Bitcoin ecosystem. They illustrate how a cryptocurrency called Tether, which is claimed to be pegged to the U.S. dollar, might have been used to prop up and manipulate Bitcoin prices during market downturns. This highlights a key vulnerability in cryptocurrency markets, where market manipulation and the lack of comprehensive regulations can lead to significant price distortions.

Bouri, Shahzad, and Roubaud, in "Co-explosivity in the cryptocurrency market", highlight the interconnectedness of different cryptocurrencies. They identify significant co-movement between major cryptocurrencies, suggesting that these digital assets do not exist in isolation but rather form an interconnected market ecosystem. This co-movement presents both opportunities and challenges. For investors, this interconnectedness can diversify portfolios and mitigate risk, but it can also lead to simultaneous crashes or spikes across multiple cryptocurrencies.

On the darker side of the cryptocurrency market, Soska and Christin, in "Measuring the Longitudinal Evolution of the Online Anonymous Marketplace Ecosystem", explore the use of cryptocurrencies in illegal online markets. They reveal how cryptocurrencies, due to their pseudonymous nature, have been widely adopted in online black markets for illicit transactions. This underlines a significant challenge for law enforcement agencies and raises important questions about the need for better regulatory measures.

The cryptocurrency market, although fascinating, is rife with issues like high volatility, market manipulation, and ties to illegal activities. While these challenges highlight the need for comprehensive regulations, they also represent a new frontier in financial technology with numerous opportunities for investors and innovators. As research in this area evolves, so too will our understanding of this complex and rapidly changing market.

Future Perspectives and Challenges

The future of cryptocurrencies and blockchain technology is a subject of much debate. These emerging technologies have undoubtedly opened up new avenues in digital finance and beyond, but they also present significant challenges that must be addressed.

In "The Blockchain Folk Theorem", Biais, Bisière, Bouvard, and Casamatta consider the long-term stability of blockchain systems. They propose that as the rewards for mining (creating new blocks) diminish over time, the stability and security of the blockchain could be threatened. This brings up an important point about the long-term sustainability of cryptocurrencies, particularly Bitcoin, whose supply is capped at 21 million. How will the network be maintained when the mining reward dwindles? The authors suggest the transaction fees might be a solution, but it's still an open question.

On a broader scale, Don Tapscott and Alex Tapscott, in their book "Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World", envision a future where blockchain technology permeates every sector. They discuss its potential to foster greater transparency in business, streamline supply chains, democratize access to financial services, and even enable secure voting systems. The ideas presented indicate the potential of blockchain as a transformative tool, far beyond its application in digital currencies.

However, this transformative potential is tempered by significant legal and regulatory challenges. In "Cryptocurrency or ghost money: A legal perspective", Catana, Catana, and Stanila discuss these challenges. Cryptocurrencies, due to their decentralized and borderless nature, pose regulatory dilemmas. Without a central issuing authority, who is responsible if something goes wrong? How can cryptocurrencies be regulated when they operate across borders, outside the purview of any single regulatory body? The authors suggest that international cooperation will be essential in establishing effective regulatory frameworks.

Despite these challenges, the continued evolution and adoption of cryptocurrencies and blockchain technology seem almost inevitable. The research highlighted in this review underscores both the groundbreaking potential and the substantial challenges that come with these innovations. As we move forward, it will be crucial to balance the desire for innovation with the need for security, regulatory oversight, and economic stability.

To conclude, the cryptocurrency and blockchain fields are still in their early stages, and more comprehensive research is required to address their economic, social, and legal implications. Despite this, the research thus far has laid a strong foundation for the understanding and further study of these game-changing technologies. Given their transformative potential, it is essential for regulators, policymakers, academics, and industry leaders to stay abreast of developments in these areas and to shape a future where these technologies can be safely and effectively harnessed.


In conclusion, the advent of cryptocurrencies and blockchain technology has prompted a fundamental shift in our understanding of money, finance, and governance. As this literature review has highlighted, the impact of these developments extends beyond mere currency transactions to broader economic, social, and political structures. From their functionality as a currency or investment vehicle to their market dynamics, the decentralizing power of blockchain, and the regulatory challenges they present, cryptocurrencies and blockchain technology are complex and multifaceted phenomena.

The body of academic work on these topics is vast and continually evolving, reflecting the dynamism and complexity of the field. While researchers have made significant strides in understanding these technologies and their implications, many questions remain unanswered. The future stability of blockchain systems, the appropriate regulatory approach to decentralized digital currencies, and the full breadth of blockchain's transformative potential are areas of ongoing research and debate.

Despite these uncertainties and challenges, one thing is clear: cryptocurrencies and blockchain technology have already left an indelible mark on our world and will continue to shape our digital future. Given their transformative potential, continuous research and informed dialogue among all stakeholders - researchers, policymakers, regulators, and industry practitioners - are vital to navigating the path ahead. As we look to the future, it is our collective responsibility to ensure these technologies are harnessed in a manner that maximizes their benefits while mitigating potential risks and challenges.

Bibliographic list

    • Atzori, M. (2015). Blockchain Technology and Decentralized Governance: Is the State Still Necessary?. Journal of Governance and Regulation, 6(1).
    • Biais, B., Bisière, C., Bouvard, M., & Casamatta, C. (2019). The blockchain folk theorem. Review of Financial Studies, 32(5).
    • Bouri, E., Shahzad, S. J. H., & Roubaud, D. (2019). Co-explosivity in the cryptocurrency market. Finance Research Letters, 29.
    • Catana, A. F., Catana, D., & Stanila, L. (2018). Cryptocurrency or ghost money: A legal perspective. Amfiteatru Economic Journal, 20(49).
    • Cong, L. W., & He, Z. (2019). Blockchain Disruption and Smart Contracts. Review of Financial Studies, 32(5).
    • Glaser, F., Zimmermann, K., Haferkorn, M., Weber, M. C., & Siering, M. (2014). Bitcoin - Asset or Currency? Revealing Users' Hidden Intentions. ECIS 2014 Proceedings.
    • Griffin, J. M., & Shams, A. (2020). Is Bitcoin Really Un-Tethered?. Journal of Finance, 75(4).
    • Harvey, C. R. (2016). Cryptofinance. SSRN Electronic Journal.
    • Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Self-published paper.
    • Soska, K., & Christin, N. (2015). Measuring the Longitudinal Evolution of the Online Anonymous Marketplace Ecosystem. USENIX Security Symposium.
    • Tapscott, D., & Tapscott, A. (2016). Blockchain revolution: how the technology behind bitcoin is changing money, business, and the world. Penguin.
    • Urquhart, A. (2016). The inefficiency of Bitcoin. Economics Letters, 148.
    • Yermack, D. (2015). Is Bitcoin a Real Currency? An Economic Appraisal. Handbook of Digital Currency, Elsevier.

CPA and attorney Tal Danenberg and CPA Roi Katz
Co-Chairman of the Committee for Innovation, Fintech, Blockchain and Digital Currencies at the Chamber of Accountants.
Partners and academic centers in several courses in the field of crypto and blockchain, including under the Chamber of Accountants and the BDO Finance Academy.
Lecturers at professional conferences in the crypto field both on behalf of professional chambers and at the invitation of various regulatory bodies.
We have been practicing in the field of crypto for over 5 years and are certified by Tsinanalysis for investigations in the field of crypto, among other things for the purpose of opinions required to enter funds into the banking system in Israel and to locate the source of the funds.


Fistocoin Ltd. specializes in forensic investigations for the purpose of entering funds into the banking system. Writing opinions on AML, KYC and more for legal, accounting and financial needs.



Fistocoin Ltd. specializes in forensic investigations for the purpose of entering funds into the banking system. Writing opinions on AML, KYC and more for legal, accounting and financial needs.


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