Satoshi nakamoto claimed the inaugural bitcoin design paper

Blockchain and Digital Payments: Analysis of Cryptocurrencies 155

Defining altcoins is a necessary first step3before considering their possible contribution in the payment system and the challenges posed for issuers, users, and regulators. Analytic scrutiny serves a further important role to establish the defining characteristics of cryp-tocurrencies (more than 400 at the time of writing) that allows for a uniform study. The terms “cryptocurrencies” and “altcoins” are going to be used interchangeably in the chapter to describe platforms that rely on the blockchain and on double-key cryptogra-phy and employ a peer-to-peer structure, to “issue digital cash,” usually called “coin,”with the aim of transmitting economic value across the Internet. The analysis of crypto-currencies is going to fall back on the study of the bitcoin, which at the time of writing is by far the most visible, popular, and larger in terms of market capitalization.4Bitcoin is also where the innovative technology of the blockchain was first introduced, and this cryptocurrency developed the source code the other altcoins adopted through a process of replication and variation. This chapter is also going to take into consideration other accepted altcoins, but because of their variation and their number, not all them can be accurately represented and described by the basic characteristics listed earlier.

of the standard of value and of means of final settlement of payment (Evans, 2014, p. 9; Yermack, 2014, p. 10). Even if there is nothing that prevents altcoins from replacing the state currencies and their “moneyness” or not is an empirical question, it is important to keep in mind that bitcoin and other cryptocurrencies are designed as protocols that trans-mit economic value across the Internet and not as money. As Satoshi Nakamoto claimed in the inaugural Bitcoin design paper, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party” (Nakamoto, 2009, p. 1).

David Evans argued that the important innovation of Nakamoto was the blockchain, an encoded, distributed, digital ledger of transactions. Evans (2014, p. 2) described the bitcoin and the other “virtual currencies” like it as “decentralized public ledger platforms”capturing the distinguishing characteristic of these payment systems. Anyone who holds altcoins also has the exact copy of the blockchain, making all transactions visible to the users of the system, eliminating the information asymmetries that characterize the traditional hierarchical system of financial intermediation, and enhancing the security of the public ledger of the transactions. More importantly, the existence of the blockchain makes inter-mediation from third parties like commercial banks or credit card companies obsolete by delegating the verification of transactions to a distributed peer-to-peer network and rewarding the nodes that are successful in verifying transactions. The verification process and the consequent reward of the effort and the infrastructure involved in solving the math-ematical equations related with the processing of transactions and the verification of the blockchain are described as “mining.”5Mining is also the way that new digital cash comes to existence, providing an automatic mechanism for the supply of the cryptocurrencies.