Bitcoin design, theory of money and implications: a Keynesian assessment

Abstract

The arise of cryptocurrencies was a significant breakthrough in our modern economies. Many people, including high-level economists, have been advocating the use of Bitcoins and of other cryptocurrencies as an alternative to national currencies, while some people are afraid that they are a fraudulent scheme or that they will bring a financial apocalypse. In order not to fall into the extreme sides of the debate, in this chapter we will separate the Bitcoin system and technology from the Bitcoin monetary unit. Whereas we recognize that the idea behind the system is revolutionary and can indeed facilitate and improve our payments and other systems, the concept behind the unit definition was based on a specific interpretation of Money. We show that the main problems of bitcoin and other cryptocurrencies that follow the same design are on the definition of the unit, based on a classical Theory of Money. In comparison, we explore some concepts of a Keynesian theory of Money, using Keynes's essential properties of Money and concepts of Modern Money Theory, to define what is Money. Finally, we present some interpretations and possible consequences of the Bitcoin design under the light of the Keynesian perspective and we show that Bitcoin cannot be characterized as Money.