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Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin Payment System

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  • Huberman, Gur
  • Leshno, Jacob
  • Moallemi, Ciamac C.

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.

Suggested Citation

  • Huberman, Gur & Leshno, Jacob & Moallemi, Ciamac C., 2017. "Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin Payment System," CEPR Discussion Papers 12322, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12322
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    References listed on IDEAS

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    1. Joshua S. Gans & Hanna Halaburda, 2015. "Some Economics of Private Digital Currency," NBER Chapters, in: Economic Analysis of the Digital Economy, pages 257-276, National Bureau of Economic Research, Inc.
    2. David Yermack, 2013. "Is Bitcoin a Real Currency? An economic appraisal," NBER Working Papers 19747, National Bureau of Economic Research, Inc.
    3. Hanna Halaburda & Miklos Sarvary & Guillaume Haeringer, 2022. "Beyond Bitcoin," Springer Books, Springer, edition 2, number 978-3-030-88931-9, June.
    4. Neil Gandal & Hanna Halaburda, 2014. "Competition in the Cryptocurrency Market," Staff Working Papers 14-33, Bank of Canada.
    5. Christian Catalini & Joshua S. Gans, 2016. "Some Simple Economics of the Blockchain," NBER Working Papers 22952, National Bureau of Economic Research, Inc.
    6. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-781, August.
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    Keywords

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    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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