Some simple Bitcoin Economics
Linda Schilling and
No 12831, CEPR Discussion Papers from C.E.P.R. Discussion Papers
How do Bitcoin prices evolve? What are the consequences for monetary policy? We answer these questions in a novel, yet simple endowment economy. There are two types of money, both useful for transactions: Bitcoins and Dollars. A central bank keeps the real value of Dollars constant, while Bitcoin production is decentralized via proof-of-work. We obtain a ``fundamental condition'', which is a version of the exchange-rate indeterminacy result in Kareken-Wallace (1981), and a ``speculative'' condition. Under some conditions, we show that Bitcoin prices form convergent supermartingales or submartingales and derive implications for monetary policy.
Keywords: Bitcoin; cryptocurrency; currency competition; Exchange Rates; Indeterminacy (search for similar items in EconPapers)
JEL-codes: D50 E40 E42 E50 (search for similar items in EconPapers)
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Working Paper: Some Simple Bitcoin Economics (2018)
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