Bitcoin is an online communication protocol that facilitates virtual currency including electronic payments. Since its inception in 2009 by an anonymous group of developers, Bitcoin has served tens of millions of transactions with total dollar value in the billions. Users have been drawn to Bitcoin for its decentralization, intentionally relying on no single server or set of servers to store transactions and also avoiding any single party that can ban certain participants or certain types of transactions. Bitcoin is of interest to economists in part for its potential to disrupt existing payment systems and perhaps monetary systems, and also for the wealth of data it provides about agents’ behavior and about the Bitcoin system itself. This article presents the platform’s design principles and properties for a non-technical audience, reviews its past, present and future uses, and points out risks and regulatory issues as Bitcoin interacts with the conventional financial system and the real economy.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2604219_code337148.pdf?abstractid=2495572&mirid=1&type=2

Bitcoin: Economics, Technology, and Governance

On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier?

https://www.econstor.eu/bitstream/10419/129339/1/837459923.pdf

Hedging capabilities of bitcoin. Is it the virtual gold

Human Development Report 2007/2008: fighting climate change: human solidarity in a divided world

https://dash.harvard.edu/bitstream/handle/1/15786564/hagiu,wright_multi-sided-platforms.pdf?sequence=1

Multi-sided platforms

We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining early dynamics of exchange rates among different cryptocurrencies. While Bitcoin essentially dominates this market, our data suggest no evidence of a winner-take-all effect early in the market. Indeed, for a relatively long period, a few other cryptocurrencies competing with Bitcoin (the early industry leader) appreciated much more quickly than Bitcoin. The data in this period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with winner-take-all dynamics. Toward the end of our sample, however, things change dramatically. Bitcoin appreciates against the USD, while other currencies depreciate against the USD. The data in this period are consistent with strong network effects and winner-take-all dynamics. This trend continues at the time of writing.

https://www.mdpi.com/2073-4336/7/3/16/pdf

Can We Predict the Winner in a Market with Network Effects? Competition in Cryptocurrency Market

We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies.

/pdf/competition-in-the-cryptocurrency-market-4yxp1acbao.pdf

Competition in the Cryptocurrency Market

We study the effect of different levels of information on two-sided platform profits – under monopoly and competition. One side (developers) is always informed about all prices and therefore forms responsive expectations. In contrast, we allow the other side (users) to be uninformed about prices charged to developers and to hold passive expectations. We show that platforms with more market power (monopoly) prefer facing more informed users. In contrast, platforms with less market power (i.e., facing more intense competition) have the opposite preference: they derive higher profits when users are less informed. The main reason is that price information leads user expectations to be more responsive and therefore amplifies the effect of price reductions. Platforms with more market power benefit because higher responsiveness leads to demand increases, which they are able to capture fully. Competing platforms are affected negatively because more information intensifies price competition.

/pdf/information-and-two-sided-platform-profits-26oize93he.pdf

Information and Two-Sided Platform Profits

https://www.hbs.edu/faculty/Publication%20Files/12-045_02e6a1fd-9664-4b3e-b3cf-353c2be5c720.pdf

Digital currencies have attracted strong interest in recent years and have the potential to become widely adopted for use in making payments. Public authorities and central banks around the world are closely monitoring developments in digital currencies and studying their implications for the economy, the financial system and central banks.

/pdf/central-bank-digital-currencies-a-framework-for-assessing-3hgcrwtc4s.pdf

Hanna Halaburda

Papers

Can We Predict the Winner in a Market with Network Effects? Competition in Cryptocurrency Market

Competition in the Cryptocurrency Market

Information and Two-Sided Platform Profits

Information and Two-Sided Platform Profits

Central Bank Digital Currencies: A Framework for Assessing Why and How