Eggs in One Basket: Security and Convenience of Digital Currencies

Charles Kahn, Francisco Rivadeneyra and Russell Wong

Staff Working Papers from Bank of Canada

Abstract: Digital currencies store balances in anonymous electronic addresses. We analyze the trade-offs between the safety and convenience of aggregating balances in addresses, electronic wallets and banks. In our model, agents balance the risk of theft of a large account with the cost to safeguarding a large number of passwords for many small accounts. Account custodians (banks, wallets and other payment service providers) have different objectives and trade-offs along these dimensions; we analyze the welfare effects of differing industry structures and interdependencies. In particular, we examine, the consequences of “password aggregation" programs, which, in effect, consolidate risks across accounts.

Keywords: Central bank research; Digital currencies and fintech; Financial services; Payment clearing and settlement systems (search for similar items in EconPapers)
JEL-codes: E42 E51 E58 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2021-01
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Eggs in One Basket: Security and Convenience of Digital Currencies (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:21-6

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