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Marriott Marquis, Grand Ballroom 12
American Economic Association
Models of Cryptocurrencies: Pricing and Design
Friday, Jan. 3, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: Guillaume Rocheteau, University of California-Irvine
The Economics of Cryptocurrencies: Bitcoin and Beyond
AbstractHow 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.
Privacy as a Public Good: A Case for Electronic Cash
AbstractPrivacy is a feature inherent to the use of cash for payments. With steadily increasing market shares of commercial digital payments platforms, privacy in payments may no longer be attainable in the future. In this paper, we explore the potential welfare impact of reductions in privacy in payments in a dynamic framework. In our framework, firms may use data collected through payments to price discriminate among future customers. A public good aspect of privacy in payments arises because individual customers do not bear the full costs of failing to protect their privacy. As a consequence, they may sub-optimally choose not to preserve their privacy in payments. When left to market forces alone, the use of privacy-preserving means of payments, such as cash, may decline faster than is optimal.
Money Mining and Price Dynamics
AbstractWe develop a random-matching model to study the price dynamics of monies produced privately according to a time-consuming mining technology. There exists a unique equilibrium where the value of money reaches a steady state. There is also a continuum of perfect-foresight equilibria indexed by the starting value of the currency where the price of money inflates and bursts gradually over time. In the aftermath of its introduction, private money is held for a speculative motive and it acquires a transactional role when it becomes sufficiently abundant. We study divisible, indivisible, fiat and commodity monies, and adopt implementation and equilibrium approaches.
Federal Reserve Bank of St. Louis
University of Chicago
University of Wisconsin
- G0 - General
- E4 - Money and Interest Rates