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Decentralizing Money: Bitcoin Prices and Blockchain Security


  • Emiliano S Pagnotta


We address the determination of bitcoin prices and decentralized security. Users forecast the transactional and resale values of holdings, pricing the risk of systemic attacks. Miners contribute resources to protect against attackers and compete for block rewards. Bitcoin’s design leads to multiple equilibria: the same blockchain technology is consistent with sharply different price and security levels. Bitcoin’s monetary policy can lead to welfare losses and deviations from quantity theory. Price-security feedback amplifies fundamental shocks’ volatility impact and leads to boom and busts unconnected to fundamentals. We characterize how viability versus fiat currency depends on bitcoin’s relative acceptability and inflation protection.

Suggested Citation

  • Emiliano S Pagnotta, 2022. "Decentralizing Money: Bitcoin Prices and Blockchain Security," The Review of Financial Studies, Society for Financial Studies, vol. 35(2), pages 866-907.
  • Handle: RePEc:oup:rfinst:v:35:y:2022:i:2:p:866-907.

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    Cited by:

    1. Simplice A. Asongu & Nicholas M. Odhiambo, 2023. "Female unemployment, mobile money innovations and doing business by females," Journal of Innovation and Entrepreneurship, Springer, vol. 12(1), pages 1-26, December.
    2. Aggelos Kiayias & Philip Lazos & Jan Christoph Schlegel, 2023. "Would Friedman Burn your Tokens?," Papers 2306.17025,
    3. Simplice A. Asongu & Peter Agyemang-Mintah & Joseph Nnanna & Yolande E. Ngoungou, 2024. "Mobile money innovations, income inequality and gender inclusion in sub-Saharan Africa," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-21, December.
    4. Joseph Abadi & Markus Brunnermeier, 2018. "Blockchain Economics," NBER Working Papers 25407, National Bureau of Economic Research, Inc.
    5. Asongu, Simplice A. & Ngoungou, Yolande E. & Nnanna, Joseph, 2023. "Mobile money innovations and health performance in sub-Saharan Africa," Technology in Society, Elsevier, vol. 74(C).
    6. Feng, Wenjun & Zhang, Zhengjun, 2023. "Risk-weighted cryptocurrency indices," Finance Research Letters, Elsevier, vol. 51(C).
    7. Aloosh, Arash & Ouzan, Samuel & Shahzad, Syed Jawad Hussain, 2022. "Bubbles across Meme Stocks and Cryptocurrencies," Finance Research Letters, Elsevier, vol. 49(C).
    8. Gousia Habib & Sparsh Sharma & Sara Ibrahim & Imtiaz Ahmad & Shaima Qureshi & Malik Ishfaq, 2022. "Blockchain Technology: Benefits, Challenges, Applications, and Integration of Blockchain Technology with Cloud Computing," Future Internet, MDPI, vol. 14(11), pages 1-22, November.
    9. Pourpourides, Panayiotis, 2023. "Long-Term Nexus of Macroeconomic and Financial Fundamentals with Cryptocurrencies," Cardiff Economics Working Papers E2023/23, Cardiff University, Cardiff Business School, Economics Section.
    10. Barros, Fernando & Bertolai, Jefferson & Carrijo, Matheus, 2023. "Cryptocurrency is accounting coordination: Selfish mining and double spending in a simple mining game," Mathematical Social Sciences, Elsevier, vol. 123(C), pages 25-50.
    11. Asongu, Simplice A. & le Roux, Sara, 2023. "The role of mobile money innovations in transforming unemployed women to self-employed women in sub-Saharan Africa," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    12. Yu, Haoyang & Sun, Yutong & Liu, Yulin & Zhang, Luyao, 2023. "Bitcoin Gold, Litecoin Silver: An Introduction to Cryptocurrency’s Valuation and Trading Strategy," OSF Preprints t2fku, Center for Open Science.
    13. Kim, Daehan & Ryu, Doojin & Webb, Robert I., 2023. "Determination of equilibrium transaction fees in the Bitcoin network: A rank-order contest," International Review of Financial Analysis, Elsevier, vol. 86(C).
    14. Aggelos Kiayias & Philip Lazos & Paolo Penna, 2024. "Single-token vs Two-token Blockchain Tokenomics," Papers 2403.15429,, revised Jun 2024.
    15. Conlon, Thomas & Corbet, Shaen & McGee, Richard J., 2024. "The Bitcoin volume-volatility relationship: A high frequency analysis of futures and spot exchanges," International Review of Financial Analysis, Elsevier, vol. 91(C).
    16. Chen, Meichen & Qin, Cong & Zhang, Xiaoyu, 2022. "Cryptocurrency price discrepancies under uncertainty: Evidence from COVID-19 and lockdown nexus," Journal of International Money and Finance, Elsevier, vol. 124(C).
    17. Michael Sockin & Wei Xiong, 2023. "Decentralization through Tokenization," Journal of Finance, American Finance Association, vol. 78(1), pages 247-299, February.

    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation


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