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Bitcoin Economics

In: Economics Gone Astray

Author

Listed:
  • Erik Norland
  • Blu Putnam

Abstract

What is most striking about the economics of bitcoin is the juxtaposition of the certainty of supply and the uncertainty of demand. The rate at which bitcoin is mined has been highly predictable and, unlike almost any other asset, currency or commodity, its ultimate supply is a known quantity, fixed in advance. There will never be more than 21 million coins. This feature makes bitcoin supply almost perfectly inelastic. No matter how high the price rises, miners will not ultimately produce any more than the prescribed amount. Moreover, price rises will not even necessarily incentivize a more rapid mining of bitcoin. Even if they did, it would mean miners create more bitcoin today at the expense of creating less of it in the future since the total supply will reach a hard, asymptotic limit of 21 million coins, expected to be reached by 2040 or so, based on the mining algorithms…

Suggested Citation

  • Erik Norland & Blu Putnam, 2019. "Bitcoin Economics," World Scientific Book Chapters, in: Economics Gone Astray, chapter 7, pages 81-94, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781944659592_0007
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    More about this item

    Keywords

    Economics; Macroeconomics; Monetary Policy; Fiscal Policy; Inflation; Risk Management; Federal Reserve; Quantitative Easing; Taylor Rule;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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