A Monetary Model of Blockchain

Anna Almosova

VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy from Verein für Socialpolitik / German Economic Association

Abstract: The recent emergence of blockchain-based cryptocurrencies has received a considerable attention. The growing acceptance of cryptocurrencies has led many to speculate that the blockchain technology can surpass a traditional centralized monetary system. However, no monetary model has yet been developed to study the economics of the blockchain. This paper builds a model of the economy with a single generally acepted blockchain-based currency. In the spirit of the search and matching literature I use a matching function to model the operation of the blockchain. The formulation of the money demand is taken from a workhorse of monetary economics - Lagos and Wright (2005). I show that in a blockchain-based monetary system money demand features a precautionary motive which is absent in the standard Lagos-Wright model. Due to this precautionary money demand the monetary equilibrium can be stable for some calibrations. I also used the developed model to study how the equilibrium return on money is dependent on the blockchain parameters such as mining costs and rewards.

Keywords: Blockchain; Miners; Cryptocurrency; Matching function (search for similar items in EconPapers)
JEL-codes: E40 E41 E42 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon, nep-ore and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc18:181502

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