Privately issued cryptocurrency

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Privately issued cryptocurrency is type of digital currencies issued on DLT and secured with cryptography. Hence the term, “crypto” and “currency”. By being issued privately, it means that it is issued by a private institution, foundation or consortium. This is opposed to currency issued by a legal established institution like central bank or credit institution or e-money institution. That being said, the premise of cryptocurrency being built on DLT is that it is distributed, at least to a certain extent.

Characteristics of Cryptocurrency

Not Legal Tender

Although some cryptocurrency may be pegged to a fiat currency or have similar functions and power, they are not legal tender as it is privately issued. Similar to virtual currencies, that means that:

  1. there is no obligation for someone to accept it
  2. it does not have to be accepted at full face value
  3. the currency has no power to remove the repayment obligations.

Decentralization

Built on DLT, cryptocurrency is decentralized. That means the crypto-accounting ledger is copied to participants on DLT to avoid issues like double-spending. That being said, the level of governance can be a range of centralization – from a group of masternodes to fully decentralized.

Based on cryptographic algorithm

Cryptographic algorithms are used to secure transactions and govern the supply available.

Censorship resistant

A reason Bitcoin was created was to introduce an alternative currency to the traditional money in the economy, controlled by any central authorities 12 . As the currency is free from any central authority to dictate how one can move one’s own money, it is resistant to highly-controlled economies[1].

No central authority runs the network

As it has a level of decentralization in the governance layer, no one single entity can change the rules of the game. Decentralized governance is where people in the network get to vote upon decision making issues and some parts are governed by code.


Cryptocurrency vs CBDC
Virtual currency CBDC
Currency format Digital Digital
Unit of account Invented currency or

virtual form of

national currency

National currency
Legal status Unregulated Regulated
Acceptance Within a specific digital

community or ecosystem

By undertaking of the issuer
Issuer Non-financial or financial

private company

Legal established institutions

like the central bank

Foundational

technology

Distributed ledger technology

(ie. blockchain)

- Permissioned distributed ledger

- Centralized permissioned

private non-distributed ledger

Source: ECB edited[2] by Economics Design[3]


  1. An example would be Venezuela. During the crisis in Venezuela, citizens are moving out of the country with their valuable assets, physically. The government took away their assets and this is not possible with cryptocurrencies.
  2. European Central Bank (ECB), Virtual Currency Schemes *5 (Oct 2012), online at https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf
  3. More risks can be found in the report of EBA’s opinion on virtual currencies. Details about risks of payment systems can be found on page 270 of the 2014 Q3 report by Bank of England https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/quarterly-bulletin-2014-q3.pdf