The Fundamental Flaw of Bitcoin

Colin L. Read ()
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Colin L. Read: SUNY Plattsburgh

Chapter Chapter 8 in The Bitcoin Dilemma, 2022, pp 77-93 from Springer

Abstract: Abstract For the reader interested in the economic theory behind bitcoin mining, this chapter describes the industry dynamics. Those less interested in the mathematics of the industry may prefer to skip to Chapter 9. With some understanding of the economics of the industry at hand, I next complete the economic picture. First, notice that industry dynamics are unique in that the supply of bitcoin is essentially fixed and will expand by only about 5% over the next 118 years. Economists call this supply inelastic because supply varies little, regardless of price and the level of demand. Indeed, when private keys are lost, or coins owned by SatoshiNakamoto, HatoshiNakamoto, Satoshi go unspent, supply actually declines in the bitcoin model. The unusual supply dimensions of bitcoin, combined with increasing demand over time combine to cause an increasing bitcoin price and hence energy consumption over time.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-09138-4_8

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DOI: 10.1007/978-3-031-09138-4_8

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