The Economics of Private Digital Currency

Gerald Dwyer

MPRA Paper from University Library of Munich, Germany

Abstract: Recent innovations have made it feasible to transfer private digital currency without the intervention of an institution. A digital currency must prevent users from spending their balances more than once, which is easier said than done with purely digital currencies. Current digital currencies such as Bitcoin use peer-to-peer networks and open-source software to stop double spending and create finality of transactions. This paper explains how the use of these technologies and limitation of the quantity produced can create an equilibrium in which a digital currency has a positive value. This paper also summarizes the rise of 24/7 trading on computerized markets in Bitcoin in which there are no brokers or other agents, a remarkable innovation in financial markets. I conclude that exchanges of foreign currency may be the obvious way in which use of digital currencies can become widespread and that Bitcoin is likely to limit governments’ revenue from inflation.

Keywords: digital currency; private currency; bitcoin; litecoin (search for similar items in EconPapers)
JEL-codes: E4 E41 E42 (search for similar items in EconPapers)
Date: 2014-05-08
New Economics Papers: this item is included in nep-ict and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://mpra.ub.uni-muenchen.de/57360/3/MPRA_paper_57360.pdf revised version (application/pdf)

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