Bitcoin
$48,284.09-0.71%
Ethereum
$3,443.46-1.98%
XRP
$1.08-0.33%
Cardano
$2.39-0.39%
Polkadot
$34.34-1.48%
Stellar
$0.323906-0.52%
Dogecoin
$0.241056-1.18%
Chainlink
$28.71-1.45%
Uniswap
$24.47-1.87%
Polygon
$1.37-1.80%
Litecoin
$181.15-1.70%
Bitcoin Cash
$637.76+0.35%
Algorand
$2.11+6.38%
Cosmos
$38.78+9.64%
Wrapped Bitcoin
$48,290.76-0.71%
Filecoin
$84.29-1.33%
The Graph
$0.838396-0.35%
Tron
$0.106659-1.00%
Ethereum Classic
$57.02-1.67%
Aave
$357.62-1.94%
Tezos
$6.51+3.07%
EOS
$5.27-0.91%
NEO
$50.08+0.46%
Monero
$274.60+2.56%
IOTA
$1.63-3.97%
BitTorrent
$0.003946-0.67%
Bitcoin SV
$159.28-0.34%
Waves
$28.68-3.08%
Maker
$2,867.15-0.40%
Dash
$200.81-1.62%
Decred
$141.39-5.64%
Decentraland
$0.822964-1.26%
ICON
$1.91-2.51%
NEM
$0.184065-0.79%
Zcash
$140.20-0.64%
OmiseGO
$9.41+7.20%
Qtum
$12.52-1.43%
NuCypher
$0.332935-1.65%
Bitcoin Gold
$66.14-2.02%
Yearn Finance
$33,711.67-0.94%
Basic Attention Token
$0.752000-2.20%
0x
$1.11+1.06%
Paxos Standard
$0.999912-0.05%
Ren
$0.962866-9.58%
Bancor
$4.09-1.42%
Fetch.ai
$0.815970-6.26%
Band Protocol
$9.40-0.19%
Siacoin
$0.018889+0.62%
Kava.io
$6.23-0.87%
Nano
$5.60+0.14%
Loopring
$0.467111+0.52%
Storj
$1.39-1.14%
Lisk
$3.68+1.48%
Civic
$0.526167-2.64%
Numeraire
$46.29-9.62%
Orchid
$0.374239+1.71%
PAX Gold
$1,771.95+0.41%
Augur
$26.18-1.06%
Aragon
$6.60+10.24%
Enzyme
$122.21+5.36%
district0x
$0.178042+0.52%
Kyber Network
$1.81-2.20%
SingularDTV
$0.001433-5.25%
Tether
$1.00+0.01%
USD Coin
$1.00+0.02%
Dai
$1.00-0.02%

Fed Reserve Analysts Say Common Digital Currency Distinction 'Problematic'

Bitcoin blurs the boundaries of a widely used classification of digital currencies and the distinction should be retired, say Fed experts.

Aug 13, 2020 at 8:25 a.m. UTC
Updated Sep 14, 2021 at 9:43 a.m. UTC

Financial experts at the New York Federal Reserve have taken a critical look the differences between a "common" distinction made between digital currency systems.

  • In a Wednesday Fed blog post, economists Rod Garratt and Michael Lee, analyst Brendan Malone and research exec Antoine Martin outlined the characteristics of "account-based" and "token-based" digital currency systems.
  • According to the post, an account-based system requires verification of the identity of a payer, while a token-based system needs to verify if the "object" (i.e., token) used to pay is valid or not.
  • The trouble, they write, is that some cryptocurrencies possess characteristics of both.
  • In fact, the classification method is "problematic" because the systems are not mutually exclusive and can't be broken down to provide "a taxonomic hierarchy of digital payment methods."
  • The authors cite bitcoin as a prime example of a payment method possessing characteristics of both systems.
  • Due to the way cryptocurrencies like bitcoin are constructed, the account-based system for digital currencies can be applied because of the nature of private keys and the alphanumeric string of numbers and letters that make up a bitcoin address.
  • That is, their identity is verified using the private key and address.
  • Yet, when a person wants to spend her bitcoin, the protocol verifies the payment's validity by tracking its transaction history, making the crypto a fit for the token-based method.
  • The authors note the difference among bitcoin, dollar bills and gold coins is whether a recipient of a payment can ascertain the validity of the payment unit with "reasonably high confidence."
  • While dollar bills contain security features making them hard to counterfeit, a crypto user cannot "independently" ascertain if their tokens are valid, they write.
  • It's worth noting that blockchains like Bitcoin's ensure the validity of transactions with multiple confirmations from miners using powerful computing hardware, removing the need for independent verification of each unit.
  • In conclusion, the authors argue, the distinctions between the two classifications have limited value.
  • And while such classification systems can be a useful tool in organizing and communicating concepts, in this case they could impede understanding of the growing digital currency technology space.
  • "Perhaps these terms should be retired to avoid further confusion," they write.

DISCLOSURE

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Loading...