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
Citation
PAGNOTTA, Emiliano Sebastian.
Decentralizing money: Bitcoin prices and blockchain security. (2022). Review of Financial Studies. 35, (2), 866-907.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7010
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1093/rfs/hhaa149