Victoria University

The economics of cryptocurrencies – bitcoin and beyond

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Show simple item record Chiu, Jonathan Koeppl, Thorsten V 2017-10-12T01:41:52Z 2017-10-12T01:41:52Z 2017 2017
dc.description.abstract How well can a cryptocurrency serve as a means of payment? We study the optimal design of cryptocurrencies and assess quantitatively how well such currencies can support bilateral trade. The challenge for cryptocurrencies is to overcome double-spending by relying on competition to update the blockchain (costly mining) and by delaying settlement. We estimate that the current Bitcoin scheme generates a large welfare loss of 1.4% of consumption. This welfare loss can be lowered substantially to 0.08% by adopting an optimal design that reduces mining and relies exclusively on money growth rather than transaction fees to finance mining rewards. We also point out that cryptocurrencies can potentially challenge retail payment systems provided scaling limitations can be addressed. en_NZ
dc.language.iso en_NZ
dc.relation.ispartofseries SEF Working paper ; 16/2017 en_NZ
dc.subject Cryptocurrency en_NZ
dc.subject Blockchain en_NZ
dc.subject Bitcoin en_NZ
dc.subject Double spending en_NZ
dc.subject Payment systems en_NZ
dc.title The economics of cryptocurrencies – bitcoin and beyond en_NZ
dc.type Text en_NZ
vuwschema.contributor.unit School of Economics and Finance en_NZ
vuwschema.type.vuw Working or Occasional Paper en_NZ
dc.rights.rightsholder en_NZ
vuwschema.subject.anzsrcfor 140212 Macroeconomics (incl. Monetary and Fiscal Theory) en_NZ

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