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Bitcoin as money?

Author

Listed:
  • Stephanie Lo
  • J. Christina Wang

Abstract

The spectacular rise late last year in the price of Bitcoin, the dominant virtual currency, has attracted much public attention as well as scholarly interest. This policy brief discusses how some features of Bitcoin, as designed and executed to date, have hampered its ability to perform the functions required of a fiat money??as a medium of exchange, unit of account, and store of value. Furthermore, we document how various forms of intermediaries have emerged and evolved within the Bitcoin network, particularly noting the convergence toward concentrated processing, both on and off the blockchain. We argue that much of this process would have been predicted by established theories of financial intermediation, and we consider the theories? implication for the future evolution of intermediaries serving users of Bitcoin or alternative virtual currencies. We then compare Bitcoin with other innovations to facilitate payment services, from competing alternative digital currencies to electronic payment protocols. We conclude with a broad consideration of the major factors that will likely shape the future development of Bitcoin versus other alternative payment systems. We predict that Bitcoin?s lasting legacy will be the innovations it has spurred to payment technology, although the payment system will remain dominated by large processors because of economies of scale.

Suggested Citation

  • Stephanie Lo & J. Christina Wang, 2014. "Bitcoin as money?," Current Policy Perspectives 14-4, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcq:2014_004
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    References listed on IDEAS

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    Cited by:

    1. Dimitrios Koutmos, 2020. "Market risk and Bitcoin returns," Annals of Operations Research, Springer, vol. 294(1), pages 453-477, November.
    2. Aniruddha Dutta & Saket Kumar & Meheli Basu, 2019. "A Gated Recurrent Unit Approach to Bitcoin Price Prediction," Papers 1912.11166, arXiv.org.
    3. Shimeng Shi & Yukun Shi, 2021. "Bitcoin futures: trade it or ban it?," The European Journal of Finance, Taylor & Francis Journals, vol. 27(4-5), pages 381-396, March.
    4. Aniruddha Dutta & Saket Kumar & Meheli Basu, 2020. "A Gated Recurrent Unit Approach to Bitcoin Price Prediction," JRFM, MDPI, vol. 13(2), pages 1-16, February.
    5. Koutmos, Dimitrios, 2018. "Return and volatility spillovers among cryptocurrencies," Economics Letters, Elsevier, vol. 173(C), pages 122-127.
    6. Fantazzini, Dean & Nigmatullin, Erik & Sukhanovskaya, Vera & Ivliev, Sergey, 2016. "Everything you always wanted to know about bitcoin modelling but were afraid to ask. I," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 44, pages 5-24.
    7. Julián A. Parra & Carlos Arango - Joaquín Bernal & José E. Gómez - Javier Gómez & Carlos León - Clara Machado & Daniel Osorio - Daniel Rojas & Nicolás Suárez - Eduardo Yanquen, 2019. "Criptoactivos: análisis y revisión de literatura," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, issue 92, pages 1-37, November.
    8. A. Stevens, 2017. "Digital currencies : Threats and opportunities for monetary policy," Economic Review, National Bank of Belgium, issue i, pages 79-92, June.
    9. Irene Henriques & Perry Sadorsky, 2018. "Can Bitcoin Replace Gold in an Investment Portfolio?," JRFM, MDPI, vol. 11(3), pages 1-19, August.
    10. Anton Badev & Matthew Chen, 2014. "Bitcoin: Technical Background and Data Analysis," Finance and Economics Discussion Series 2014-104, Board of Governors of the Federal Reserve System (U.S.).
    11. Luther, William J. & Salter, Alexander W., 2017. "Bitcoin and the bailout," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 50-56.
    12. Yan Li & Zhicheng Wang & Hongchuan Wang & Meiyu Wu & Lingling Xie, 2021. "Identifying price bubble periods in the Bitcoin market-based on GSADF model," Quality & Quantity: International Journal of Methodology, Springer, vol. 55(5), pages 1829-1844, October.
    13. Kang, Kee-Youn, 2019. "Cryptocurrency, Delivery Lag, and Double Spending History," MPRA Paper 93598, University Library of Munich, Germany.
    14. Malavika Nair & Nicolás Cachanosky, 2017. "Bitcoin and entrepreneurship: breaking the network effect," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(3), pages 263-275, September.
    15. Jaroslav Bukovina & Matus Marticek, 2016. "Sentiment and Bitcoin Volatility," MENDELU Working Papers in Business and Economics 2016-58, Mendel University in Brno, Faculty of Business and Economics.
    16. Toan Luu Duc Huynh, 2019. "Spillover Risks on Cryptocurrency Markets: A Look from VAR-SVAR Granger Causality and Student’s-t Copulas," JRFM, MDPI, vol. 12(2), pages 1-19, April.
    17. Pieters, Gina & Vivanco, Sofia, 2017. "Financial regulations and price inconsistencies across Bitcoin markets," Information Economics and Policy, Elsevier, vol. 39(C), pages 1-14.
    18. Nizar, Muhammad Afdi, 2018. "Kontroversi Mata Uang Digital [The Controversies of Digital Currency]," MPRA Paper 97940, University Library of Munich, Germany.
    19. Greg W. Hunter & Craig Kerr, 2019. "Virtual Money Illusion and the Fundamental Value of Non-Fiat Anonymous Digital Payment Methods," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 25(2), pages 151-164, May.
    20. Ur Koumba & Calvin Mudzingiri & Jules Mba, 2020. "Does uncertainty predict cryptocurrency returns? A copula-based approach," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 13(1), pages 67-88, January.
    21. Claire Greene & Scott Schuh & Joanna Stavins, 2016. "The 2014 survey of consumer payment choice: summary results," Research Data Report 16-3, Federal Reserve Bank of Boston.
    22. Nilufer Nilufer & Zeynep Yeni Erol, 2020. "A critical approach to technology-based risks in blockchain system," International Journal of Business Ecosystem & Strategy (2687-2293), Bussecon International Academy, vol. 2(1), pages 44-50, January.
    23. Koutmos, Dimitrios, 2018. "Liquidity uncertainty and Bitcoin’s market microstructure," Economics Letters, Elsevier, vol. 172(C), pages 97-101.
    24. Zura Kakushadze & Jim Kyung-Soo Liew, 2018. "CryptoRuble: From Russia with Love," Papers 1801.05760, arXiv.org.

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    More about this item

    Keywords

    medium of exchange; liquidity; money; speculative bubble;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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