Publication Type

Journal Article

Version

submittedVersion

Publication Date

2-2022

Abstract

We address the determination of bitcoin prices and decentralized security. Users forecast the transactional and resale values of holdings, pricing the risk of systemic attacks. Miners contribute resources to protect against attackers and compete for block rewards. Bitcoin's design leads to multiple equilibria: the same blockchain technology is consistent with sharply different price and security levels. Bitcoin's monetary policy can lead to welfare losses and deviations from quantity theory. Price-security feedback amplifies fundamental shocks' volatility impact and leads to boom and busts unconnected to fundamentals. We characterize how viability versus fiat currency depends on bitcoin's relative acceptability and inflation protection.

Keywords

bitcoin, blockchain, cryptocurrencies, volatility, bubbles, mining, asset prices, inflation, decentralization, networks

Discipline

Finance and Financial Management | Technology and Innovation

Research Areas

Finance

Publication

Review of Financial Studies

Volume

35

Issue

2

First Page

866

Last Page

907

ISSN

0893-9454

Identifier

10.1093/rfs/hhaa149

Publisher

Oxford University Press (OUP): Policy F - Oxford Open Option D

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1093/rfs/hhaa149

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