|
on Information and Communication Technologies |
| By: | Auer, Raphael |
| Abstract: | This paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, ie "proof-of-work". Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via "double-spending" attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive. Second, the transaction market cannot generate an adequate level of "mining" income via fees as users free-ride on the fees of other transactions in a block and in the subsequent blockchain. Instead, newly minted bitcoins, known as block rewards, have made up the bulk of mining income to date. Looking ahead, these two limitations imply that liquidity is set to fall dramatically as these block rewards are phased out. Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality. Second-layer solutions such as the Lightning Network might help, but the only fundamental remedy would be to depart from proof-of-work, which would probably require some form of social coordination or institutionalisation. |
| Keywords: | Bitcoin; blockchain; cryptocurrencies; Digital Currencies; distributed ledger technology; ethereum; Finance; money; proof-of-stake; Proof-of-Work |
| JEL: | D20 D40 E42 E51 F31 G12 G28 G32 G38 L10 L50 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13506&r=all |
| By: | Raphael Auer |
| Abstract: | This paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, ie "proof-of-work". Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via "double-spending" attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive. Second, the transaction market cannot generate an adequate level of "mining" income via fees as users free-ride on the fees of other transactions in a block and in the subsequent blockchain. Instead, newly minted bitcoins, known as block rewards, have made up the bulk of mining income to date. Looking ahead, these two limitations imply that liquidity is set to fall dramatically as these block rewards are phased out. Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality. Second-layer solutions such as the Lightning Network might help, but the only fundamental remedy would be to depart from proof-of-work, which would probably require some form of social coordination or institutionalisation. |
| Keywords: | cryptocurrencies, crypto-assets, digital currencies, blockchain, proof-of-work, proof-of-stake, distributed ledger technology, consensus, bitcoin, ethereum, money, digitalisation, finance, history of money |
| JEL: | D40 D20 E42 E51 F31 G12 G28 G32 G38 L10 L50 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:765&r=all |
| By: | Carlos Conesa (Banco de España) |
| Abstract: | In October 2008 a mysterious article was published under the pseudonym Satoshi Nakamoto: “Bitcoin: a peer-to-peer electronic cash system”. Bitcoin’s entry into operation some months later in early 2009 barely caused a ripple. Since then, the scheme has accumulated more than half a million blocks in its blockchain and they include more than 300 million transactions. In view of the media impact of Bitcoin, it is worth explaining in some detail how Bitcoin works and what its limitations are. This article reviews the aims and basic functioning of Bitcoin, analyses its strengths and weaknesses, and discusses its usefulness as an exchange mechanism. |
| Keywords: | blockchain, hash function, bitcoin, cryptoassets, cryptography, innovation, technology. |
| JEL: | O31 O33 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:1901&r=all |
| By: | Jeffrey Mollins; Pierre St-Amant |
| Abstract: | We ask whether a weaker contribution of information and communication technologies (ICT) to productivity growth could account for the productivity slowdown observed in Canada since the early 2000s. To answer this question, we consider several methods capturing channels through which ICT could affect aggregate productivity growth. This includes an approach “à la Cette et al. (2015)” that focuses on the use of ICT capital. We also examine two-sector models including a simple approach with use and production effects, and an approach “à la Oulton (2012)” that highlights the role of relatively weak growth in ICT prices. However, Oulton’s approach is based on strong assumptions about the structure of the economy, some of which are clearly inconsistent with Canadian data. We therefore propose a different model based on assumptions that are less restrictive but that still capture various channels (production, capital deepening, price effects). Our results indicate that ICT continues to contribute to productivity growth, but that this contribution has declined and accounts for part of the productivity slowdown. However, the slowdowns in productivity and in the contribution of ICT do not seem to have the same timing. While productivity slowed in the early 2000s, ICT contribution does not appear to have fallen until around the Great Recession. This prompts the conclusion that while ICT had little to no role in the initial productivity slowdown, it has been a major determinant of the subdued productivity growth since around the recession. |
| Keywords: | Productivity |
| JEL: | D24 O4 O41 O47 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-2&r=all |
| By: | Ferreira, Daniel; Li, Jin; Nikolowa, Radoslawa |
| Abstract: | We develop a theory of blockchain governance. In our model, the proof-of-work system, which is the most common set of rules for validating transactions in blockchains, creates an industrial ecosystem with specialized suppliers of goods and services. We analyze the two-way interactions between blockchain governance and the market structure of the industries in the blockchain ecosystem. Our main result is that the proof-of-work system leads to a situation where the governance of the blockchain is captured by a large firm. |
| Keywords: | blockchain; governance; Industrial Ecosystem; Proof-of-Work |
| JEL: | G30 L13 M20 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13493&r=all |
| By: | Maria FONT-MAS (Lecturer in Private International Law, University Rovira i Virgili, Catalonia, Spain) |
| Abstract: | In the economy, we distinguish, in a simple way, the strictly capitalist business sector and the corporate social sector. This simple dichotomy has been transferred to the scope of the collaborative economy, which mistakenly includes under the same name capital platforms and social platforms. These platforms have in common different factors, for instance, namely that they essentially use the digital platform to develop their activity; but they differ in that the first ones seek to maximize capital and the platform is a mere messenger that manages economic transactions just like the classical economy. In front of these, there are social platforms in which the main objective is not for profit, although benefits are obtained, the goal being to have a social impact, at the same time that it provides services or products to the users, following specific values. On the one hand, it is necessary to analyze the legal structure of these platforms. The capitalist economy has as a leading actor the mercantile company, while the social economy is based on cooperatives, associations, foundations. The last assertion does not imply that limited companies of social economy exist in comparative law. On the other hand, is very important to determine the legal position of the parties or participants in the collaborative economy and the value of their agreements, especially in situations where does not exist peer-to-peer. In particular, our study aims to focus on contractual and noncontractual relationships exist between the three participants. At this point, we introduce the initial legislative proposals that are being made in the European Union, which specifically wants to protect the consumer, especially online. |
| Keywords: | collaborative economy, social economy, legal person-corporation, transnational contracts |
| JEL: | K33 K12 F23 L23 P13 P45 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:crc:wpaper:1812&r=all |