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Monopoly without a monopolist: An economic analysis of the bitcoin payment system

Gur Huberman, Jacob D. Leshno and Ciamac Moallemi

No 27/2017, Research Discussion Papers from Bank of Finland

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.

JEL-codes: D40 D20 L10 L50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ind, nep-mic and nep-pay
Date: 2017-09-05
References: View references in EconPapers View complete reference list from CitEc
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