Skip to main content Accessibility help
×
Home
Hostname: page-component-55597f9d44-vkn6t Total loading time: 0.337 Render date: 2022-08-20T03:50:57.400Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "useRatesEcommerce": false, "useNewApi": true } hasContentIssue true

Getting off the ground: the case of bitcoin

Published online by Cambridge University Press:  03 August 2018

WILLIAM J. LUTHER*
Affiliation:
Department of Economics, Florida Atlantic University, Boca Raton, FL 33431
*

Abstract

By declaring an item legal tender or making it publicly receivable, governments might generate sufficient demand to determine the medium of exchange. How do private actors launch a new money? There are two views in the literature. The first requires offering an item with a use value to some agents that is distinct from its role as a medium of exchange. The second suggests that agents might coordinate on an intrinsically useless item. With these views in mind, I survey the logs from the original bitcoin forum, bitcoin-list. I find that early participants in the bitcoin community understood the importance of coordination and took steps to coordinate users.

Type
Research Article
Copyright
Copyright © Millennium Economics Ltd 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aiyagari, S. R. and Wallace, N. (1997), ‘Government Transaction Policy, the Medium of Exchange, and Welfare’, Journal of Economic Theory, 74 (1): 118.CrossRefGoogle Scholar
Aliprantis, C. D., Camera, G. and Puzzello, D. (2006), ‘Matching and Anonymity’, Economic Theory, 29 (2): 415432.CrossRefGoogle Scholar
Aliprantis, C. D., Camera, G. and Puzzello, D. (2007a), ‘Anonymous Markets and Monetary Trading’, Journal of Monetary Economics, 54 (7): 19051928.CrossRefGoogle Scholar
Aliprantis, C. D., Camera, G. and Puzzello, D. (2007b), ‘Contagion Equilibria in a Monetary Model’, Econometrica, 75 (1): 277282.CrossRefGoogle Scholar
Anderson, B. M. (1917), The Value of Money. Macmillan.Google Scholar
Araujo, L. (2004), ‘Social Norms and Money’, Journal of Monetary Economics, 51 (2): 241256.CrossRefGoogle Scholar
Araujo, L., Camargo, B., Minetti, R. and Puzzello, D. (2012), ‘The Essentiality of Money in Environments with Centralized Trade’, Journal of Monetary Economics, 59 (7): 612621.CrossRefGoogle Scholar
Başçı, E. (1999), ‘Learning by Imitation’, Journal of Economic Dynamics and Control, 23 (9): 15691585.CrossRefGoogle Scholar
Dowd, K. and Greenaway, D. (1993), ‘Currency Competition, Network Externalities and Switching Costs: Towards an Alternative View of Optimum Currency Areas’, Economic Journal, 103 (420): 11801189.CrossRefGoogle Scholar
Duffy, J. (2001), ‘Learning to Speculate: Experiments with Artificial and Real Agents’, Journal of Economic Dynamics and Control, 25 (3): 295319.CrossRefGoogle Scholar
Duffy, J. and Ochs, J. (1999), ‘Emergence of Money as a Medium of Exchange: An Experimental Study’, American Economic Review, 89 (4): 847877.CrossRefGoogle Scholar
Duffy, J. and Ochs, J. (2002), ‘Intrinsically Worthless Objects as Media of Exchange: Experimental Evidence’, International Economic Review, 43 (3): 637673.CrossRefGoogle Scholar
Duffy, J. and Puzzello, D. (2014), ‘Gift Exchange versus Monetary Exchange: Theory and Evidence’, American Economic Review, 104 (6): 17351776.CrossRefGoogle Scholar
Fafchamps, M., Leij, M. J. and Goyal, S. (2010), ‘Matching and Network Effects’, Journal of the European Economic Association, 8 (1): 203231.CrossRefGoogle Scholar
Fernández-Villaverde, J. and Sanches, D. (2016), ‘Can Currency Competition Work?’ National Bureau of Economic Research, Working Paper 22157.CrossRefGoogle Scholar
Forstater, M. (2006), ‘Tax-driven Money: Additional Evidence from the History of Economic Thought, Economic History and Economic Policy’, Complexity, Endogenous Money and Macroeconomic Theory: Essays in Honour of Basil J. Moore, pp. 202–220.CrossRefGoogle Scholar
Fung, B. and Halaburda, H. (2014), ‘Understanding Platform-based Digital Currencies’, Bank of Canada Review (Spring): 1220.Google Scholar
Fung, B., Hendry, S. and Weber, W. E. (2017), ‘Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies’, Bank of Canada Staff Working Paper 2017-4.Google Scholar
Gale, D. (1982), Money: In Equilibrium. Cambridge University Press.Google Scholar
Gandal, N. and Halaburda, H. (2014), ‘Competition in the Cryptocurrency Market’, Bank of Canada Staff Working Paper 2014–33.CrossRefGoogle Scholar
Gans, J. S. and Halaburda, H. (2013), ‘Some Economics of Private Digital Currency’, Bank of Canada Staff Working Paper 2013–38.CrossRefGoogle Scholar
Giansante, S. (2006), ‘Social Networks and Medium of Exchange’, Working paper.Google Scholar
Goldberg, D. (2005), ‘Famous Myths of “Fiat Money”’, Journal of Money, Credit and Banking, 37 (5): 957967.CrossRefGoogle Scholar
Goldberg, D. (2012), ‘The Tax-foundation Theory of Fiat Money’, Economic Theory, 50 (2): 489497.CrossRefGoogle Scholar
Graf, K. (2013), ‘On the Origins of Bitcoin: Stages of Monetary Evolution’, Working paper.Google Scholar
Grinberg, R. (2012), ‘Bitcoin: An Innovative Alternative Digital Currency’, Hastings Science & Technology Law Journal, 4: 159207.Google Scholar
Hahn, F. H. (1965), ‘On Some Problems of Proving the Existence of an Equilibrium in Monetary Economies’, The Theory of Interest Rates, pp. 126–135.Google Scholar
Hasker, K. and Tahmilci, A. (2008), ‘The Rise of Money: An Evolutionary Analysis of the Origins of Money’, Working paper, Bilkent University.Google Scholar
Hendrickson, J. R. and Luther, W. J. (2017a), ‘Banning Bitcoin’, Journal of Economic Behavior & Organization, 141: 188195.CrossRefGoogle Scholar
Hendrickson, J. R. and Luther, W. J. (2017b), ‘Cash, Crime, and Cryptocurrency’, Working paper.Google Scholar
Hendrickson, J. R. and Luther, W. J. (2017c), ‘The Value of Bitcoin in the Year 2141 (and beyond!)’, Working paper.Google Scholar
Hendrickson, J. R., Hogan, T. L. and Luther, W. J. (2016), ‘The Political Economy of Bitcoin’, Economic Inquiry, 54 (2): 925939.CrossRefGoogle Scholar
Kawagoe, T. (2007), ‘Learning to Use a Perishable Good as Money’, Multi-Agent-Based Simulation VII, 4442: 96111.CrossRefGoogle Scholar
King, M. (2004), ‘The Institutions of Monetary Policy’, American Economic Review, 94 (2): 113.CrossRefGoogle Scholar
Kiyotaki, N. and Wright, R. (1989), ‘On Money as a Medium of Exchange’, Journal of Political Economy, 97 (4): 927954.CrossRefGoogle Scholar
Kiyotaki, N. and Wright, R. (1991), ‘A Contribution to the Pure Theory of Money’, Journal of Economic Theory, 53 (2): 215235.CrossRefGoogle Scholar
Kiyotaki, N. and Wright, R. (1993), ‘A Search-theoretic Approach to Monetary Economics’, American Economic Review, 83 (1): 6377.Google Scholar
Knapp, G. F. (1924), The State Theory of Money. Macmillan.Google Scholar
Lagos, R. and Wright, R. (2005), ‘A Unified Framework for Monetary Theory and Policy Analysis’, Journal of Political Economy, 113 (3): 463484.CrossRefGoogle Scholar
Lagos, R. and Wright, R. (2008), ‘When is Money Essential? A Comment on Aliprantis, Camera and Puzzello’, Working paper.Google Scholar
Li, Y. and Wright, R. (1998), ‘Government Transaction Policy, Media of Exchange, and Prices’, Journal of Economic Theory, 81 (2): 290313.CrossRefGoogle Scholar
Luther, W. J. (2013), ‘Friedman versus Hayek on Private Outside Monies: New Evidence for the Debate’, Economic Affairs, 33 (1): 127135.CrossRefGoogle Scholar
Luther, W. J. (2016a), ‘Bitcoin and the Future of Digital Payments’, Independent Review, 20 (3): 397404.Google Scholar
Luther, W. J. (2016b), ‘Cryptocurrencies, Network Effects, and Switching Costs’, Contemporary Economic Policy, 34 (3): 553571.CrossRefGoogle Scholar
Luther, W. J. (2016c), ‘Mises and the Moderns on the Inessentiality of Money in Equilibrium’, Review of Austrian Economics, 29 (1): 113.CrossRefGoogle Scholar
Luther, W. J. (forthcoming), ‘Regulating Bitcoin: On What Grounds?’ Journal of New Finance.Google Scholar
Luther, W. J. (2018), ‘Is Bitcoin Intrinsically Worthless?Journal of Private Enterprise, 33 (1): 3145.Google Scholar
Luther, W. J. and Olson, J. (2015), ‘Bitcoin is Memory’, Journal of Prices & Markets, 3 (3): 2233.Google Scholar
Luther, W. J. and Salter, A. W. (2017), ‘Bitcoin and the Bailout’, Quarterly Review of Economics and Finance, 66: 5056.CrossRefGoogle Scholar
Luther, W. J. and White, L. H. (2014), ‘Can Bitcoin Become a Major Currency?Cayman Financial Review, 36: 7879.Google Scholar
Luther, W. J. and White, L. H. (2016), ‘Positively Valued Fiat Money after the Sovereign Disappears: The Case of Somalia’, Review of Behavioral Economics, 3 (3–4): 311334.CrossRefGoogle Scholar
Marimon, R., McGrattan, E. and Sargent, T. J. (1990), ‘Money as a Medium of Exchange in an Economy with Artificially Intelligent Agents’, Journal of Economic Dynamics and Control, 14 (2): 329373.CrossRefGoogle Scholar
Menger, C. (1892), ‘On the Origin of Money’, Economic Journal, 2 (6): 239255.CrossRefGoogle Scholar
Mises, L. von (1934), The Theory of Money and Credit. Jonathan Cape.Google Scholar
Nair, M. and Cachanosky, N. (2017), ‘Bitcoin and Entrepreneurship: Breaking the Network Effect’, Review of Austrian Economics, 30 (3): 263275.CrossRefGoogle Scholar
Nicholson, J. S. (1895), A Treatise on Money and Essays on Monetary Problems (3rd edition), Adam and Charles Black.Google Scholar
Ostroy, J. M. and Starr, R. M. (1990), ‘The Transactions Role of Money’, Handbook of Monetary Economics, 1: 362.CrossRefGoogle Scholar
Patinkin, D. (1965), Money, Interest, and Prices: An Integration of Monetary and Value Theory. Harper and Row.Google Scholar
Popper, N. (2015), Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money. HarperCollins.Google Scholar
Ron, D. and Shamir, A. (2013), ‘Quantitative Analysis of the Full Bitcoin Transaction Graph’, Financial Cryptography and Data Security, pp. 6–24.CrossRefGoogle Scholar
Rupert, P., Schindler, M., Shevchenko, A. and Wright, R. (2000), ‘The Search-theoretic Approach to Monetary Economics: A Primer, Economic Review, 36 (4): 1028.Google Scholar
Salter, A. W. and Luther, W. J. (2014), ‘Synthesizing State and Spontaneous Order Theories of Money’, Advances in Austrian Economics, 18: 161178.CrossRefGoogle Scholar
Scott, W. A. (1897), ‘The Quantity Theory’, Annals of the American Academy of Political and Social Science, 9 (2): 4058.CrossRefGoogle Scholar
Selgin, G. (2015), ‘Synthetic Commodity Money’, Journal of Financial Stability, 17: 9299.CrossRefGoogle Scholar
Selgin, G. A. (1994), ‘On Ensuring the Acceptability of a New Fiat Money’, Journal of Money, Credit and Banking, 26 (4): 808826.CrossRefGoogle Scholar
Selgin, G. A. (2003), ‘Adaptive Learning and the Transition to Fiat Money’, Economic Journal, 113 (484): 147165.CrossRefGoogle Scholar
Selgin, G. A. and White, L. H. (1987), ‘The Evolution of a Free Banking System’, Economic Inquiry, 25 (3): 439457.CrossRefGoogle Scholar
Selgin, G. A. and White, L. H. (1994), ‘How Would the Invisible Hand Handle Money?Journal of Economic Literature, 32 (4): 17181749.Google Scholar
Shy, O. (2011), ‘A Short Survey of Network Economics’, Review of Industrial Organization, 38 (2): 119149.CrossRefGoogle Scholar
Staudinger, S. (1998), ‘Money as Medium of Exchange – An Analysis with Genetic Algorithms’, IFAC Proceedings Volumes, 31 (16): 9398.CrossRefGoogle Scholar
Sumner, S. (1993), ‘Privatizing the Mint’, Journal of Money, Credit and Banking, 25 (1): 1329.CrossRefGoogle Scholar
Sumner, S. (2000), ‘Is Nonprice Competition in Currency Inefficient? A Comment’, Journal of Money, Credit and Banking, 32 (1): 146149.CrossRefGoogle Scholar
Weber, W. E. (2014), ‘The Efficiency of Private E-money-like Systems: the US Experience with State Bank Notes’, Bank of Canada Staff Working Paper 2014–15.CrossRefGoogle Scholar
Weber, W. E. (2015a), ‘Government and Private E-money-like Systems: Federal Reserve Notes and National Bank Notes’, Bank of Canada Staff Working Paper 2015–18.CrossRefGoogle Scholar
Weber, W. E. (2015b), ‘The Efficiency of Private E-money-like Systems: the US Experience with National Bank Notes’, Bank of Canada Staff Working Paper 2015-3.CrossRefGoogle Scholar
Weber, W. E. (2016), ‘A Bitcoin Standard: Lessons from the Gold Standard’, Bank of Canada Staff Working Paper 2016-14.Google Scholar
White, L. H. (1987), ‘Accounting for Non-interest-bearing Currency: A Critique of the Legal Restrictions Theory of Money’, Journal of Money, Credit and Banking, 19 (4): 448456.CrossRefGoogle Scholar
White, L. H. (2015), ‘The Market for Cryptocurrencies’, Cato Journal, 35 (2): 383402.Google Scholar
White, L. H. and Boudreaux, D. J. (1998), ‘Is Nonprice Competition in Currency Inefficient?Journal of Money, Credit and Banking, 30 (2): 252260.CrossRefGoogle Scholar
White, L. H. and Boudreaux, D. J. (2000), ‘Is Nonprice Competition in currency inefficient? A Reply’, Journal of Money, Credit and Banking, 32 (1): 150153.CrossRefGoogle Scholar
Yelowitz, A. and Wilson, M. (2015), ‘Characteristics of Bitcoin Users: An Analysis of Google Search Data’, Applied Economics Letters, 22 (13): 10301036.CrossRefGoogle Scholar
Yermack, D. (2013), ‘Is Bitcoin a Real Currency? An Economic Appraisal’, National Bureau of Economic Research, Working Paper 19747.CrossRefGoogle Scholar
21
Cited by

Save article to Kindle

To save this article to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Getting off the ground: the case of bitcoin
Available formats
×

Save article to Dropbox

To save this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Dropbox account. Find out more about saving content to Dropbox.

Getting off the ground: the case of bitcoin
Available formats
×

Save article to Google Drive

To save this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Google Drive account. Find out more about saving content to Google Drive.

Getting off the ground: the case of bitcoin
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *