Some simple bitcoin economics

We provide a model of an endowment economy with two competing, but intrinsically worthless currencies (Dollar, Bitcoin). Dollars are supplied by a central bank to achieve its inflation target, while the Bitcoin supply grows deterministically. Our fundamental pricing equation implies in its simplest form that Bitcoin prices form a martingale. “Mutual impatience” implies absence of speculation. Price volatility therefore does not invalidate the medium-of-exchange function. Bitcoin block rewards are not a tax on Bitcoin holders: they are financed with a Dollar tax. We discuss monetary policy implications, Bitcoin production, taxation, welfare and entry, and characterize the range of equilibria.

• Publication year

  2019

• Venue

  Journal of Monetary Economics

• Publication date

  2019-10-01

• Fields of study

  Economics

• Identifiers
  DOI 10.1016/J.JMONECO.2019.07.002
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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