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computer law & security review 000 (2018) 1–8

is used, it must be generally be withdrawn from a bank and then delivered, practices that are fraught with risk. 50 Through the pseudonymous nature of a Bitcoin transaction, 51 those who really value their privacy stand a better chance of avoid- ing detection, particularly by a hostile government. In fact, other forms of cryptocurrency have emerged for the purpose of providing an enhanced form of privacy protection that some in the marketplace see as lacking. 52 Second, even criminal enterprises must consider the util- ity of their money as a store of value over time, which is a fea- ture that all consumers may value. Bitcoin is designed to per- mit only a limited quantity of 21 million units to be released over time – a form of “mathematically predetermined mone- tary policy.” 53 Fiat currencies depend on the trustworthiness of the issuing government. Given past experience with gov- ernments expanding the money supply and devaluing their currencies, 54 some might prefer the prospects for value in a cryptocurrency like Bitcoin, putting their trust in code more than in the human actors within their government and/or central bank. Nevertheless, some caution is in order: while the number of Bitcoin units may be limited, no effective limit is imposed on the total number of units of cryptocurrency of all kinds that could be created. Other cryptocurrencies could de- velop which also may serve a payment function, thereby lim- iting value through competition. As a related problem, Bitcoin has produced a record of volatility, whichmay also limit its practical utility as amedium of exchange as opposed to a form of investment. Some com- mentators have compared Bitcoin to a collectible, which one is reluctant to spend when prospects for appreciation factor into the decision. 55 Third, eliminating trusted intermediaries also means elim- inating some of their services, including services like error cor- rection, fraud, and dispute resolution, which other electronic payment systems provide. When a private key to cryptocur- rency is lost, that cryptocurrency is effectively lost forever. The Payments 195; Jane K.Winn, Regulatory Developments in the Euro- pean Union: Structures and Frameworks 207, all in Electronic Pay- ment Systems: Law and Emerging Technologies (Edward A. Morse, ed. 2018). 50 See generally Edward A. Morse & Ian Ramsey, Navigating the Perils of Ransomware, 72 Bus. Lawyer 287 (2016-17). 51 See Friedman, supra note 46, at 126-27 (explaining that since all transactions are stored publicly on the blockchain, if public data can be associated with a transacting individual then details of all associated transactions can be ascertained). 52 See, e.g., Olga Kharif, The Criminal Underworld is Drop- ping Bitcoin for Another Currency (January 2, 2018), https:// www.bloomberg.com/news/articles/2018-01-02/criminal- underworld-is-dropping-bitcoin-for-another-currency (noting shift to other currencies, including monero, in response to data analytic techniques adopted by law enforcement in US and EU); David Floyd, ZCash Privacy Weakened by Certain Behaviors, Re- searchers Say (updated May 9, 2018), https://www.coindesk.com/ zcash-privacy-weakened-by-certain-behaviors-researchers-say/ (noting shielded identity option for ZCash currency participants). 53 See Friedman, supra note 46, at 127 (internal quotes omitted). 54 See, e.g., Wolman, supra note 6, at 38-39. 55 Bluford Putnam & Erik Norland, An In-Depth Look at the Economics of Bitcoin (April 24, 2018), http://www. cmegroup.com/education/featured-reports/an-in-depth-look- at-the-economics-of-bitcoin.html .

anonymity valued by some in the cryptocurrency space also prevents recourse when payments go wrong. Fourth, in the earliest days of Bitcoin, transaction costs were not a significant component of a Bitcoin transaction. 56 Thus, early adopters of Bitcoin might also have seen a cost advantage to be realized from its use, particularly for high- transaction cost items such as international remittances. 57 But transaction costs have become an important feature of Bitcoin, varying widely over time. 58 As prices of Bitcoin soared to record levels, more people added transaction fees to en- sure that their transactions would be processed. 59 Conversely, as Bitcoin began to be held more as a speculative invest- ment than a means of payment, fewer transactions occurred, thereby lowering the amount of computer processing de- manded. 60 Transaction costs of over $150 per Bitcoin have oc- curred, and these cost levels impose practical limits on the demand for Bitcoin as a medium of exchange. 61 Some theo- rists predict that those high transaction costs incentivize the creation of other cryptocurrencies, which are then purchased with Bitcoin and used for purchase transactions. 62 However, as noted above, this may also forecast a more limited util- ity (and value) for the cryptocurrency that reaches dominant status. Transaction costs imposed on users are not the only costs to consider. Just as consumers may choose payment cards without regard to fees imposed on merchants that are hidden to them, Bitcoin users may be unaware of operational costs that are diffused throughout the network. The Bitcoin proto- cols depend on diffused but collective action by so-called min- ers, who provide computing power across the Internet in or- der to validate transactions and reconcile the common ledger (block-chain). 63 Rather than operating within a closed envi- ronment of trust,miners operate in an environment of compe- tition and mistrust to ensure the integrity of the blockchain. 64 Miners compete to perform these tasks, following agreed upon algorithms that are used to validate new transactions, in- cluding the proof that a sender of Bitcoin actually owns that amount and has not previously spent it. Those who compete effectively are rewarded with a certain amount of Bitcoin and 56 See Friedman, supra note 46, at 130 (noting potential to tip $.25 in Bitcoin without cost). 57 See id. (noting particular value in remittance trade). Indeed, Ripple has developed a business model for using blockchain tech- nology in international remittances. See generally Note, Marcel T. Rosen & Andrew Kang, Understanding and Regulating Twenty- First Century Payment Systems: The Ripple Case Study, 114 Mich. L. Rev. 649 (2016). 58 See Putnam & Norland, supra note 55. 59 See Alyssa Hertig, Bitcoin Fees Are Down Big: Why It Happened and What it Means (updated Feb. 26, 2018), https://www.coindesk. com/bitcoin-low-fees-why-happening-why-matters/ . 60 See id. 61 See Putnam & Norland, supra note 55. 62 See id. 63 See id; see also Friedman, supra note 46, at 127.

64 See Adam Hayes & Paulo Tasca, Blockchain and Crypto- currencies 217, in The FINTECH Book (Susanne Chishti & Janos Barberis 2016). Please cite this article as: E.A. Morse, From Rai stones to Blockchains:The transformation of payments, Computer Law & Security Review: The International Journal of Technology Law and Practice (2018), https://doi.org/10.1016/j.clsr.2018.05.035