2
$\begingroup$

This is not a homework question. I am merely interested.

As an academic discipline, Economics refers to various laws and widely held beliefs including, but not exclusive to;

  • Production precedes consumption
  • Value is subjective
  • Production has cost
  • Money is not wealth
  • Supply and demand

Etc etc.

Is the rise of cryptocurrency refuting or violating any typically held economic beliefs? Or, inversely, are cryptocurrencies/society acting exactly as Economics would logically predict?

$\endgroup$
3
$\begingroup$

Cryptocurrencies can be analysed from different perspectives: from the monetary perspective or from the asset & security perspective. The difference is: a digital asset is a good with some value which can be used/consumed for something, while currency is used as a store of value and mean of trade. I would say that currently is mostly being traded as an investment and not as currency, because it is bought to be sold for an higher price later, not to pay for goods and services.

Analysing it as an asset there is little surprise, as Dave Harris explained: they are an asset being traded speculatively, acting as expected in these conditions.

I haven't found analysis of it as currency, I assume because there is little evidence of it being used as such for legal purposes (most legal payments are not done with bitcoin). From what we know until now, there is little evidence of unexpected behaviour from a monetary perspective.

For further reading, take a look at this list of most cited crypocurrency publications.

$\endgroup$
5
$\begingroup$

There is quite a bit of research on it and a good argument as to why central banks should not issue cryptocurrencies, but should issue electronic money. I would recommend reading https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies/

and

https://research.stlouisfed.org/publications/review/2018/02/13/blockchain-what-it-is-what-it-does-and-why-you-probably-dont-need-one/

https://research.stlouisfed.org/publications/review/2018/02/13/is-bitcoin-a-waste-of-resources/

Nothing about cryptocurrencies is surprising to me. Indeed, the separate parts have been in use, in some cases, for hundreds of years. Bitcoin is a clever combination of things that have long existed. The other cryptocurrencies, such as Etherium, also offer self-executing contracts. Those are also very old. The simplest that you may physically see are sight drafts, which are common in the southeastern United States. It is a draft printed on an envelope and is payable only when the envelope contains a properly executed document.

There is nothing surprising to me about how cryptocurrencies are behaving, but they cannot continue like this and they won't. You should read "Good Money," by George Selgin, who writes about the creation of private money in Britain by button makers to meet an unfilled demand.

What you are seeing is a process by which people learn. If you think this whole process through, you will find that you will not want to participate in this little revolution until supply and demand intersect. By limiting the number of coins the various firms have created artificial scarcity. However, we now have 759 cryptocurrencies and growing. Each one makes the others just a little less valuable. Although there is an argument against a central bank entering the market, if one did, the private money would vanish if the official money could be exchanged at a 1 to 1 rate.

Imagine the impact on Bitcoin prices if the Chinese or British central bank allowed people to walk in the door and exchange their cyptocurrency directly for cash? No trading costs? Think about how easy it would be to pop this bubble. What if Bank of America were to offer one instead of an unknown, small, private company? What if they allowed direct deposits and withdrawals? What if they paid the mining costs to their own computers?

You are looking at the modern version of the South Sea Bubble or the Tulip Bubble. When people are learning and making money, they do funny things.

$\endgroup$
  • $\begingroup$ Interesting - will check those links. Just one edit I would suggest; there are now a little under 1600 coins and tokens. $\endgroup$ – Venture2099 May 1 '18 at 17:31
  • $\begingroup$ So I'm reading the above links, almost a year after they were posted here, and I must say that most of the "research" is excessively poorly done, with a huge anti bitcoin spin on it, and I think by now we all know bitcoin is here to stay 😂 $\endgroup$ – Ninjanoel Mar 22 at 19:37
0
$\begingroup$

for an interesting read, there is this PDF detailing a comment about a recent Bitcoin EFT (exchange traded funds) proposal, and in it he outlines how bitcoin isn't a currency for various reasons, but ignores that it actually IS being used as a currency.

https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf (link at the top to the sixth response details nine currencies in history and how they were created, and hence why he thinks bitcoin is not a currency)

p.s. I don't agree with the overall opinion in the pdf, but it is an interesting read

$\endgroup$
-1
$\begingroup$

To date, they're behaving exactly as we'd expect them to, given their nature as ponzi schemes in a speculative bubble.

Cryptocurrency adoption is not violating any widely held economic tenets: these ponzi schemes are behaving in line with the economic tenets that cover these things.

The speculative bubble of cryptocurrencies is very much in line with our understanding within behavioural economics of how foolish people with money behave when faced with a superficially appealing proposition that they don't fully understand.

$\endgroup$
  • 3
    $\begingroup$ This seems unnecessarily combative and without academic references. $\endgroup$ – Venture2099 May 1 '18 at 13:21
  • $\begingroup$ And yet spot on, nevertheless $\endgroup$ – EnergyNumbers May 1 '18 at 16:42
  • $\begingroup$ I doubt it. If I had the ability I would flag for mod intervention or deletion. We both know this is not an answer. $\endgroup$ – Venture2099 May 1 '18 at 17:28
  • $\begingroup$ It completely answers the question you asked. I realise that you don't like the answer. $\endgroup$ – EnergyNumbers May 1 '18 at 19:00
  • $\begingroup$ It doesn't answer anything and we both know it. Since when does Stack Exchange allow single line answers? $\endgroup$ – Venture2099 May 1 '18 at 19:41

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.