Dwyer, Gerald P (2014): The Economics of Bitcoin and Similar Private Digital Currencies.
This is the latest version of this item.
Download (583kB) | Preview
Recent innovations have made it feasible to transfer private digital currency without the intervention of an institution. A digital currency must prevent users from spending their balances more than once, which is easier said than done with purely digital currencies. Current digital currencies such as Bitcoin use peer-to-peer networks and open-source software to stop double spending and create finality of transactions. This paper explains how the use of these technologies and limitation of the quantity produced can create an equilibrium in which a digital currency has a positive value. This paper also summarizes the rise of 24/7 trading on computerized markets in Bitcoin in which there are no brokers or other agents, a remarkable innovation in financial markets. I conclude that exchanges of foreign currency may be the obvious way in which use of digital currencies can become widespread and that Bitcoin is likely to limit governments’ revenue from inflation.
|Item Type:||MPRA Paper|
|Original Title:||The Economics of Bitcoin and Similar Private Digital Currencies|
|Keywords:||digital currency, private currency, bitcoin, litecoin, block chain, blockchain, private digital currency|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems
|Depositing User:||Gerald P. Dwyer|
|Date Deposited:||17. Jul 2014 07:51|
|Last Modified:||17. Jul 2014 07:52|
Babaioff, Moshe, Shear Dobzinski, Sigel Oren and Aviv Zohar. 2012. On Bitcoins and Red Balloons. Proceedings of the 13th ACM Conference on Electronic Commerce. 56-73.
Berentsen, Aleksander. 2006. On the Private Provision of Fiat Currency. European Economic Review, 1683-98.
Chaum, David, Amos Fiat and Mona Naor. 1990. Untraceable Electronic Cash. In Advances in Cryptology – CRYPTO ’88 Lecture Notes in Computer Science, 403, 319-27.
Demsetz, Harold. 1968. The Cost of Transacting. Quarterly Journal of Economics. 82 (1), 33-53.f
Dwyer, Gerald P. 2014. Are Bitcoin Mining Pools a Natural Monopoly? At http://www.jerrydwyer.com/blog. July.
Dwyer, Gerald P., and Margarita Samartín. 2009. Why Do Banks Promise to Pay Par on Demand? Journal of Financial Stability 5, 147-169.
Dwyer, Gerald P. 1999. The Economics of Open Source and Free Software. Unpublished paper available at http://www.jerrydwyer.com/pdf/opensource.pdf.
Friedman, Milton. 1969. The Optimum Quantity of Money. In The Optimum Quantity of Money and Other Essays, pages 1-50. Chicago: Aldine Publishing Company.
Gans, Joshua S. and Hanna Halaburda. 2013. Some Economics of Private Digital Currency. Unpublished paper, University of Toronto.
Grinberg, Reuben. 2011. Bitcoin: An Innovative Alternative Digital Currency. Hastings Science & Technology Law Journal. 160-206.
Hayek, F. A. 1976. Denationalisation of Money. Second (extended) edition. London: Institute of Economic Affairs.
Hill, Kashmir. 2013. Living on Bitcoin for a Week: Bitcoin Is the Internet Applied to Money (And I Survived It). Forbes. May 7.
Karame, Ghassan O., Elli Androulaki and Srdjan Capkun. 2012. Double-spending Fast Payments in Bitcoin. Proceedings of the 2012 ACM Conference on Computer and Communications Security, 906-917.
Klein, Benjamin. 1974. The Competitive Supply of Money. Journal of Money, Credit and Banking 6 (4), 423-53.
Kocherlakota, Narayana R. 1998. Money is Memory. Journal of Economic Theory 81, 232-51.
Lerner, Josh, and Jean Tirole. 2002. Some Simple Economics of Open Source Software. Journal of Industrial Economics 50 (2, June), 197-234.
Luther, William J. 2013. Friedman versus Hayek on Private Outside Monies: New Evidence for the Debate. Economics Affairs. 127-35.
Luther, William J. and Josiah Olson. Bitcoin is Memory. Unpublished paper, Kenyon College.
Marimon, Ramon, Juan Pablo Nicolini and Pedro Teles. 2012. Money Is An Experience Good: Competition and Trust in the Private Provision of Money. Journal of Monetary Economics 59, 815-25.
Martin, Antoine and Stacey L. Schreft. 2008. Currency Competition: A Partial Vindication of Hayek. Journal of Monetary Economics 53, 2085-2111.
Martinez-Carter, Karina. 2012. Argentina’s Dollar-Sniffing Dogs. Business Week. January 12.
Meiklejohn, Sarah, Marjori Pomarole, Grant Jordan, Kirill Levchenko, Damon McCoy, Geoffrey M. Voelker and Stefan Savage. 2013. “A Fistful of Bitcoins: Characterizing Payments Among Men with No Names.” IMC’ 13 Proceedings of the 2013 Conference on Internet Measurement, 127-40.
Minar, Nelson and March Hedlund. 2001. A Network of Peers. In Peer-to-Peer: Harnessing the Power of Disruptive Technologies, pp. 3-20. Edited by Andy Oram. Sebastopol, California: O’Reilly.
Nakamoto, Satoshi. (No date). “Bitcoin: A Peer-to-Peer Electronic Cash System.” Available at http://bitcoing.org/bitcoin.pdf.
O’Mahoney, Donal, Michael Pierce and Hitesh Tewari. 1997. Electronic Payment Systems. Boston: Artech House.
Raymond, Eric. 1999. A Brief History of Hackerdom. In Open Sources: Voices from the Open Source Revolution. Edited by Chris DiBona, Sam Ockham and Mark Stone. Sebastopol, California: O’Reilly.
Reid, Fergal and Martin Harrigan. 2013. An Analysis of Anonymity in the Bitcoin System. In Security and Privacy in Social Networks, pp. 197-223.
Ron, Dorit and Adi Shamir. 2013. Quantitative Analysis of the Full Bitcoin Transaction Graph. In Proceedings of the 17th International Conference on Financial Cryptography and Data Security.
Ron, Dorit and Adi Shamir. 2013. How Did Dread Pirate Roberts Acquire and Protect His Bitcoin Wealth? Unpublished paper, Weizmann Institute of Science, Israel.
Selgin, George. 2013. Synthetic Commodity Money. Unpublished paper, University of Georgia.
Schneier, Bruce. Applied Cryptography. 1996. Second Edition. New York: John Wiley & Sons, Inc.
Sparshott, Jeffrey. 2013. Web Money Gets Laundering Rule. Wall Street Journal, March 22.
Wallace, Benjamin. 2011. The Rise and Fall of Bitcoin.” Wired, November 23. Available at http://www.wired.com/magazine/2011/11/mf_bitcoin/all/1.
Wayner, Peter. 1997. Digital Cash. 2nd edition. London: AP Professional.
Yermack, David. 2013. Is Bitcoin a Real Currency? An Economic Appraisal. Unpublished paper, National Bureau of Economic Research.
Available Versions of this Item
The Economics of Private Digital Currency. (deposited 09. May 2014 10:21)
- The Economics of Bitcoin and Similar Private Digital Currencies. (deposited 17. Jul 2014 07:51) [Currently Displayed]