Optimization methods are used to determine equilibria of investment in cryptocurrencies. The basic assumptions involve existence of a core group (the "wealthy") that fears the loss of substantial assets through government seizure. Speculators constitute another group that tends to introduce volatility and risk for the wealthy. The wealthy must divide their assets between the home currency and the cryptocurrency, while the government decides on the probability of seizing a fraction the assets of this group. Under the assumption that each group exhibits risk aversion through a utility function, we establish the existence and uniqueness of Nash equilibrium. Also examined is the more realistic optimization problem in which the government policy cannot be reversed, while the wealthy can adjust their allocation in reaction to the government's designation of probability. The methodology leads to an understanding the equilibrium market capitalization of cryptocurrencies.
Stake systems which issue stakes as well as coins are proposed. Two subadditive stake systems are studied: one is the radical stake system, the other is the logarithmic stake system. Securities of both systems are analysed.
Recently, the notion of cryptocurrencies has come to the fore of public interest. These assets that exist only in electronic form, with no underlying value, offer the owners some protection from tracking or seizure by government or creditors. We model these assets from the perspective of asset flow equations developed by Caginalp and Balenovich, and investigate their stability under various parameters, as classical finance methodology is inapplicable. By utilizing the concept of liquidity price and analyzing stability of the resulting system of ordinary differential equations, we obtain conditions under which the system is linearly stable. We find that trend-based motivations and additional liquidity arising from an uptrend are destabilizing forces, while anchoring through value assumed to be fairly recent price history tends to be stabilizing.
Dionysios S. Demetis, Michael Mainelli, Matthew Leitch
Cryptocurrencies have the potential to become effective currencies that give a higher level of macroeconomic control, thanks to the information that is available about holdings and transactions, and the potential for automated control mechanisms. However, these cryptocurrencies need to be designed properly and tested before launch. This paper reports the early results of an economic model that simulates a variety of behaviors by economic agents and some simple control mechanisms. An economic simulation model is likely to be a valuable tool in developing effective cryptocurrency systems and interacting with regulators.
The evolution of the economic processes is reflected on the way the currency work. The recent development of new methods of payment based on the computer systems – and, in particular, the electronic-based systems used to register the debit\credit position, the operationalization of the market – have elicited the growth of the phenomenon of cryptocurrency, and bitcoin is nowadays the most common. There is still no precise definition of cryptocurrency at the moment, due to the complexity in matching the cryptocurrency with the proper related case in issue. That said, it is crucial as in the face of a growing interest in bitcoins, the predisposition of an adequate control mechanism, still missing, is assuming a more and more importance; and in such a critical context, this lack treats the potential traders in this new segment. The awareness of the effective consistency and diffusion of the phenomenon should encourage the authorities in taking actions against the potential risks, especially for those inexperienced operators that are not able to identify and evaluate them, attracted by the promise of high profits with low investments. One of the most critical aspect in subiecta materia is the fiscal treatment of those bitcoin operations with particular regard to money laundering and terrorism financing. The growing phenomenon of crypto currencies – in addition to introduce potential danger (with evident damages for those who use them improperly) – emphasizes the need to move forward new forms of regulation of such complex matter, so that it can be redefined under the competence of the public authority.
Can a monetary system in which privately issued cryptocurrencies circulate as media of exchange work? Is such a system stable? How should governments react to digital currencies? Can these currencies and government-issued money coexist? Are cryptocurrencies consistent with an e cient allocation? These are some of the important questions that the sudden rise of cryptocurrencies has brought to contemporary policy discussions. To answer these questions, we construct a model of competition among privately issued at currencies. We nd that a purely private arrangement fails to implement an e cient allocation, even though it can deliver price stability under certain technological conditions. Currency competition creates problems for monetary policy implementation under conventional methods. However, it is possible to design a policy rule that uniquely implements an e cient allocation by driving private currencies out of the market. We also show that unique implementation of an e cient allocation can be achieved without government intervention if productive capital is introduced.
Digital currencies, such as Bitcoin, have emerged as an alternative form of money, untethered to traditional money and largely unregulated. As such, digital currency represents a wild frontier for investors who might otherwise be shopping for gold or foreign currencies, with serious risks. The present work considers digital currency from a traditional asset pricing perspective. Setting aside risks of seller fraud or currency theft, we examine fluctuation and systematic risk in the price of Bitcoin. From this perspective, Bitcoin does not appear to carry much systematic risk -- despite its high volatility -- and so is a reasonable candidate for inclusion in investors’ portfolios. Some illustrative examples suggest that the optimal amount of Bitcoin to include in investor portfolios may be tiny or instead substantial - as high as 21 percent of total financial assets.
We develop a dynamic asset-pricing model of cryptocurrencies/tokens that allow users to conduct peer-to-peer transactions on digital platforms. The equilibrium value of tokens is determined by aggregating heterogeneous users' transactional demand rather than discounting cashflows as in standard valuation models. Endogenous platform adoption builds upon user network externality and exhibits an S-curve-it starts slow, becomes volatile, and eventually tapers off. Introducing tokens lowers users' transaction costs on the platform by allowing users to capitalize on platform growth. The resulting intertemporal feedback between user adoption and token price accelerates adoption and dampens user-base volatility.
The old school -which consists largely of middle-aged and elderly men- tend to claim that bitcoin is a "bubble", and seize on every downturn in the price of bitcoin as evidence that the bubble has burst or is about to burst. The bubble only gets fatter, and all of the anti-crypto arguments -notably the argument that currencies need themselves to possess, or to be based on something with "intrinsic" value, and cryptocurrencies lack intrinsic value- are fallacious. Here we propose that there are deep mathematical reasons why the conservatives are mistaken, and why cryptocurrencies will increasingly replace their traditional counterparts.
The aim of this thesis is to familiarize the reader with the problematics of the theoretical background of cryptocurrencies from the historical perspective, focusing on the concepts of B-money and Bit gold, which were the basis for the creation of Bitcoin. The main part is devoted to this decentralized cryptocurrency called Bitcoin. It introduces Bitcoin's main milestones, the Bitcoin Foundation, the functioning system itself, and eventually Bitcoin's prospects for the future. The aim of the second part of this thesis is to develop a simple and clear system for selecting a wallet as the storage of bitcoins. What should be decided by a person who considers holding his own bitcoins. Here is used a compairing method of selected criterias. Criterias are compared based on the prerequisite that the priority for selection is mainly the bitcoin wallet. For the idea of how this wallet looks and works, the practical part also includes a sample of two selected wallets, based on the comparison of criterias, and the transfer of one dollar between them. The aim of this bachelor thesis is to process the comparation of selection procedur for use by ordinary users.
This paper studies the efficiency of the cryptocurrency market by looking at the distribution of bitcoin prices over time and across exchange-currency pairs. We document persistent differences in relative bitcoin prices (or discounts), with a half-life of 1 day, and a distribution which is leptokurtic, skewed to the right, with a standard deviation of 3.9%. The variability of discounts is larger in countries with tighter capital controls due to the combined effect of market segmentation and local supply and demand shocks, which we relate to location-specific mining activities and investor attention.
The recent development of private cryptocurrencies has created a need to extend existing models of private currency provision and currency competition. The outcome of cryptocurrency competition should be analyzed in a model which incorporates important features of the modern cryptocurrencies. In this paper I focus on two such features. First, cryptocurrencies operate according to a protocol - a blockchain - and are, therefore, free from the time-inconsistency problem. Second, the operation of the blockchain costs real resources. I use the Lagos-Wright search theoretic monetary model augmented with privately issued currencies as in Fernandez-Villaverde and Sanches (2016) and extend it by linear costs of private currency circulation. I show that in contrast to Fernandez-Villaverde and Sanches (2016) cryptocurrency competition 1) does not deliver price stability and 2) puts downward pressure on the ination in the public currency only when the costs private currency circulation (mining costs) are suciently low.
The accounting profession has long occupied a role and fiduciary responsibility aligned with fraud prevention and safeguarding consumer data and finances. As cryptocurrencies become more prominent and widespread, including utilization by both individual consumers and organizations, the risk of unethical actors entering the market continues to rise. This research approaches the situation from two angles. First, a review of cryptocurrency and blockchain technology, including an overview of the initial coin offering (ICO) process is conducted, including regulatory updates in the space. Second, and important for both academic and practitioner end users of this research, a checklist, guide, and items to consider to assist in preventing fraud connected to cryptocurrencies will be provided.
The main aim of this paper is to examine interdependencies between prices of cryptocurrencies, with the special focus on Bitcoin. The analysis is conducted in two stages and results are compared between two consequent sub-periods. In order to analyze topological properties of cryptocurrency market, the Minimum-Spanning Tree technique is used. Results indicate that Bitcoin plays one of the most important roles in the cryptocurrency market, while other cryptocurrencies form clusters and such forming has a sensible economic interpretation. In the second stage, main cryptocurrencies from each of formed clusters are analyzed using the Vector Autoregression methodology. The results from VAR (1) indicate that demand shocks in Bitcoin price are not contagious to other cryptocurrencies, while some interdependencies within the formed clusters may be observed. Overall, results indicate that conclusions drawn from the analysis of Bitcoin shall not be generalized to the entire cryptocurrency market.
Bitcoin is a digital cryptocurrency that has attracted substantial interest in recent years from the general public, profit seekers, risk takers, academic practitioners, and, last but not least, economists. Although it is referred to as new, Bitcoin has existed since 2009 and is rooted in technology that goes back even farther. It was the first established cryptocurrency, with the first trade in 2010. Since 2015, Bitcoin has attracted even more attention because of its increase in value and volume of exchange. The Bitcoin system maintains a global, distributed cryptographic ledger of transactions, or blockchain, through a consensus algorithm running on hardware scattered around the world. This paper discusses the nature of cryptocurrency and blockchain, how it works, and the present status of Bitcoin blockchain in different countries around the world. The paper also includes a review of literature on Bitcoin engineering, Bitcoin as currency and the cryptocurrency system, related work on queuing theory, and work on competition and monopoly. The paper explores three possible outcomes with regard to the future prospects of Bitcoin. The various aspects of this technology are yet to be revealed in detail, but the authors hope that this simple, basic, and narrative paper will be helpful to those seeking basic references regarding this newest issue.
During the history there have been different examples of incorporating technology into economics. Some of them include SWIFT, e-banking, mobile payments, and many more. Technology had to be commercialized and put into service of facilitating economic processes. International finances underwent the process of development too. With the globalization process national economies became more interconnected and dependent from each other. Individuals demanded a faster and more convenient way to make international payments. Internet trade is on the rise, social media rule the contemporary world, and then appears the inception of so-called crypto currencies. The most famous is Bitcoin. Where lays its place in the economic science? It looks like that Bitcoin is going towards decentralization of the monetary system known by now. The goal of this paper is to raise the awareness of the changes happening in economy and in economic science.