Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212398 
Year of Publication: 
2017
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 27/2017
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Owned by nobody and controlled by an almost immutable protocol the Bitcoin payment system is a platform with two main constituencies: users and profit seeking miners who maintain the system's infrastructure. The paper seeks to understand the economics of the system: How does the system raise revenue to pay for its infrastructure? How are usage fees determined? How much infrastructure is deployed? What are the implications of changing parameters in the protocol? A simplified economic model that captures the system's properties answers these questions. Transaction fees and infrastructure level are determined in an equilibrium of a congestion queueing game derived from the system's limited throughput. The system eliminates dead-weight loss from monopoly, but introduces other inefficiencies and requires congestion to raise revenue and fund infrastructure. We explore the future potential of such systems and provide design suggestions.
JEL: 
D40
D20
L10
L50
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-186-3
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.