The Economics of Cryptocurrencies - Bitcoin and Beyond

Jonathan Chiu and Thorsten Koeppl

No 274715, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: How well can a cryptocurrency serve as a means of payment? We study the optimal design of cryptocurrencies and assess quantitatively how well such currencies can support bilateral trade. The challenge for cryptocurrencies is to overcome double-spending by relying on competition to update the blockchain (costly mining) and by delaying settlement. We estimate that the current Bitcoin scheme generates a large welfare loss of 1.4% of consumption. This welfare loss can be lowered substantially to 0.08% by adopting an optimal design that reduces mining and relies exclusively on money growth rather than transaction fees to nance mining rewards. We also point out that cryptocurrencies can potentially challenge retail payment systems provided scaling limitations can be addressed.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 56
Date: 2017-09
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
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https://ageconsearch.umn.edu/record/274715/files/qed_wp_1389.pdf (application/pdf)

Related works:
Working Paper: The Economics of Cryptocurrencies—Bitcoin and Beyond (2019)
Working Paper: The Economics of Cryptocurrencies -- Bitcoin and Beyond (2019)
Working Paper: The Economics Of Cryptocurrencies - Bitcoin And Beyond (2017)
Working Paper: The economics of cryptocurrencies – bitcoin and beyond (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:274715

DOI: 10.22004/ag.econ.274715

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