The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Cryptocurrency

  • Eli Dourado
  • Jerry Brito
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2895

Abstract

For most of history, humans have used commodity currency. Fiat currency is a more recent development, first used around 1000 years ago, and today it is the dominant form of money. But this may not be the end of monetary history. Cryptocurrency is neither commodity money nor fiat money – it is a new, experimental kind of money. The cryptocurrency experiment may or may not ultimately succeed, but it offers a new mix of technical and monetary characteristics that raise different economic questions than other kinds of currency.

This article explains what cryptocurrency is and begins to answer the new questions that it raises. To understand why cryptocurrency has the characteristics it has, it is important to understand the problem that is being solved. For this reason, we start with the problems that have plagued digital cash in the past and the technical advance that makes cryptocurrency possible. Once this foundation is laid, we discuss the unique economic questions that the solution raises.

Keywords

Anonymity Bitcoin Byzantine Generals Problem Censorship resistance Cryptocurrency Cryptography Double spending problem Exchange rate indeterminacy Mining pools Money New monetary economics Open source Peer-to-peer networking Proof of work Pseudonymity Trust Volatility 

JEL Classifications

E40 L31 F31 O30 
This is a preview of subscription content, log in to check access.

Bibliography

  1. Black, F. 1970. Banking and interest rates in a world without money: The effects of uncontrolled banking. Journal of Bank Research 1: 9–20.Google Scholar
  2. Fama, E.F. 1980. Banking in the theory of finance. Journal of Monetary Economics 6: 39–57.CrossRefGoogle Scholar
  3. Hall, R.E. 1982. Monetary trends in the United States and the United Kingdom: A review from the perspective of new developments in monetary economics. Journal of Economic Literature 20: 1552–1556.Google Scholar
  4. Kareken, J., and N. Wallace. 1981. On the indeterminacy of equilibrium exchange rates. Quarterly Journal of Economics 96(2): 207–222. doi:10.2307/1882388.CrossRefGoogle Scholar
  5. Meiklejohn, S., Pomarole, M., Jordan, G., Levchenko, K., McCoy, D., Voelker, G. M., and, Savage, S. 2013. A fistful of bitcoins: Characterizing payments among men with no names. Proceedings of the 2013 Conference on Internet Measurement. http://cseweb.ucsd.edu/~smeiklejohn/files/imc13.pdf; http://dx.doi.org/10.1145/2504730.2504747
  6. Nakamoto, S. 2008. Bitcoin: A peer-to-peer electronic cash system. bitcoin.org.https://bitcoin.org/bitcoin.pdf.
  7. Wallace, N. 1983. A legal restrictions theory of the demand for ‘money’ and the role of monetary policy. Federal Reserve Bank of Minneapolis Quarterly Review 7: 1–7.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Eli Dourado
    • 1
  • Jerry Brito
    • 1
  1. 1.