Summary  6

1 What are cryptoassets?  8

1.1 Cryptocurrencies  8

1.2 Stablecoins  9

1.3 Security tokens  11

1.4 Non-fungible tokens (NFTs)  11

1.5 Utility tokens  11

2 How do cryptoassets work?  12

2.1 The rationale behind cryptoassets  12

Transactions in cash and digital money  12

Transactions in cryptocurrency  13

2.2 Distributed ledger technology  14

2.3 How are ledgers kept secure: Consensus  15

Proof of work  15

Proof of stake  16

Trust in consensus  16

2.4 How are cryptoassets purchased?  16

Centralised exchanges  16

Decentralised exchanges (DEX)  17

Peer-to-peer  17

Direct purchases  18

Receiving cryptoassets as payment for goods and services  18

2.5 The cryptoasset market  19

3 A brief history of cryptoassets  20

3.1 Early experiments  20

3.2 Bitcoin  20

3.3 Experiments with non-coin cryptoassets (tokens)  21

3.4 Ethereum and new uses for the blockchain  22

Initial coin offerings (ICOs)  22

Decentralised finance (DeFi) and non-fungible tokens (NFTs)  23

3.5 Crises, recovery and regulation  23

Collapse of Terra  23

Collapse of FTX  24

Recovery (2023 to 2025)  24

4 Benefits and drawbacks  26

4.1 Benefits  26

Efficiency and speed of payments  26

Lower costs in cross‑border payments  27

Financial inclusion  27

Programmability and automation (smart contracts)  27

Tokenisation and liquidity  28

Transparency and security  28

4.2 Drawbacks  29

Energy consumption and environmental impact  29

Financial crime (fraud, money laundering, sanctions evasion)  29

Consumer protection and market integrity  29

Operational, smart-contract and DeFi governance risks  30

Financial stability and contagion risks  30

5 Legislation, regulation and policy  31

5.1 Current regulation  32

Anti-money laundering law and supervision  32

Promoting cryptoasset investments  33

Sale of cryptoasset derivatives  34

5.2 Forthcoming regulation  34

Issuing stablecoins  34

Use of stablecoins in payments  36

Issuing other cryptoassets  36

Cryptoasset custody  37

Cryptoasset trading platforms, intermediaries and other activities  38

Prudential requirements  39

Next steps  39