Eggs in One Basket: Security and Convenience of Digital Currencies

Charles Kahn, Francisco Rivadeneyra and Russell Wong

No 2020-032, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Digital currencies store balances in anonymous electronic addresses. We analyze the trade-offs between safety and convenience of aggregating balances in addresses, electronic wallets and banks. In our model agents balance the risk of theft of a large account with the cost to safeguarding a large number of passwords of many small accounts. Account custodians (banks, wallets and other payment service providers) have different objectives and tradeoffs on these dimensions; we analyze the welfare effects of differing industry structures and interdependencies, and in particular the consequences of "password aggregation" programs which in effect consolidate risks across accounts.

Keywords: digital currencies; wallets; hacking; theft; welfare (search for similar items in EconPapers)
JEL-codes: E42 E51 E58 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2020-09-04
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Eggs in One Basket: Security and Convenience of Digital Currencies (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:88727

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DOI: 10.20955/wp.2020.032

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