Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin Payment System

Gur Huberman, Jacob Leshno and Ciamac C. Moallemi

No 12322, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Owned by nobody and controlled by an almost immutable protocol the Bitcoin payment system is a platform with two main constituencies: users and profit seeking miners who maintain the system’s infrastructure. The paper seeks to understand the economics of the system: How does the system raise revenue to pay for its infrastructure? How are usage fees determined? How much infrastructure is deployed? What are the implications of changing parameters in the protocol? A simplified economic model that captures the system's properties answers these questions. Transaction fees and infrastructure level are determined in an equilibrium of a congestion queueing game derived from the system's limited throughput. The system eliminates dead-weight loss from monopoly, but introduces other inefficiencies and requires congestion to raise revenue and fund infrastructure. We explore the future potential of such systems and provide design suggestions.

Keywords: Bitcoin; Blockchain; Queueing; Two-sided markets; Market design; Cryptocurrency (search for similar items in EconPapers)
JEL-codes: D20 D40 L10 L50 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-mic, nep-mon, nep-pay and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (72)

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