Understanding Cryptocurrency

Summary

This report provides a high-level overview of cryptocurrency (crypto), including its origins and technological underpinnings, and the industry built to support it. The report attempts to map crypto-related business activities to comparable products and activities in the banking space, including: existing, ongoing and emerging regulatory issues related to the sector and what to expect in the next 6 to 18 months. Finally, the report provides considerations for banks as they approach the crypto sector either generally or commercially.

Introduction

Cryptocurrencies, such as Bitcoin, rely on blockchain technology (“blockchain”). Blockchains represent a transparent and decentralized way of recording transactions, both financial and non-financial, but their use for the creation, storage, transfer, and trading of cryptocurrencies has grown exponentially over the past few years. At the same time, the crypto industry itself, while novel to many, has reached all-time highs in terms of market size, public interest, and company valuation.

There are many terms of art used to describe cryptocurrencies and they are often used interchangeably. These include digital assets (a term that also includes assets other than cryptocurrencies), virtual currencies, crypto assets (which also includes more than cryptocurrencies), and tokens. For the purposes of this paper, we will use the term cryptocurrencies or crypto to mean transferable digital units, operating on open blockchains. A full glossary of terms is provided at the end of this report.

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