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Friday, August 4, 2017

LedgerX Will Transform Cryptocurrencies

LedgerX Will Transform Cryptocurrencies

The Commodity Futures Trading Commission granted LedgerX -- a cryptocurrency trading platform -- registration as a clearing house for derivatives contracts settling in digital currencies. This indicates increasing official acceptance of cryptocurrencies. More important, the move could redefine them.

Derivatives clearing houses catalyze enormous economic change. The creation of agricultural futures clearing houses in the mid-19th century American West transformed a sparsely populated backwater into ground zero for the second Industrial Revolution. In the same place exactly 125 years later, on April 26, 1973, financial options clearing houses gave birth to the modern global derivatives economy.

The key features of derivatives clearing houses are centrally cleared, collateralized, asset-settled contracts with mark-to-market margin. Existing cryptocurrency futures and options have none of those characteristics, 1 they are merely side bets. 2 LedgerX has the first three, which may be enough to transmute cryptocurrencies.

Consider cryptocurrency renters, users and investors. Renters buy cryptocurrency for a transaction, say an international payment to someone in a financially repressed country. In effect, they pay transaction fees for payment processing services. Users both pay and receive in cryptocurrencies, and maintain balances for transactional purposes. Investors buy cryptocurrencies but don’t use them.

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