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Virtual currencies and distributed ledger technology: What is new under the sun and what is hyped repackaging?
Virtual currencies and distributed ledger technology are today ‘hype’ issues in payment developments. However, a considerable number of elements in these development proposals seem to be repackaging old solutions. This paper analyses distributed ledger technology and virtual currencies based on a general framework for funds transfer systems. The main conclusions are that distributed ledger technology can provide increased efficiency and security in ledgers, which today are already distributed, like those custodian systems used for book-entry shares and bonds. However, virtual currencies constructed as non-redeemable and non-interest-bearing bearer bonds will probably have major difficulties in finding long-term market demand. One interesting observation is also made concerning the possibility for the markets to move towards a unit of account (currency) based on a basket of real assets instead of fiat currencies.
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Harry Leinonen retired in 2016 as financial counsellor specialised in payment & settlement issues at the Finnish Ministry of Finance. Before that he was attached to the Bank of Finland mainly as advisor to the Board. He has also worked within the Finnish private banking industry and has served in several domestic and international committees and working groups. Harry is the author of several articles and books on these issues. He now works as a consultant, author and lecturer.